FCC 12-47, Second Order on Reconsideration

Federal Communications Commission

FCC 12-47

Before the
Federal Communications Commission
Washington, D.C. 20554
In the Matter of
Connect America Fund
A National Broadband Plan for Our Future
Establishing Just and Reasonable Rates for Local
Exchange Carriers
High-Cost Universal Service Support
Developing a Unified Intercarrier Compensation
Regime
Federal-State Joint Board on Universal Service
Lifeline and Link-Up
Universal Service Reform – Mobility Fund

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WC Docket No. 10-90
GN Docket No. 09-51
WC Docket No. 07-135
WC Docket No. 05-337
CC Docket No. 01-92
CC Docket No. 96-45
WC Docket No. 03-109
WT Docket No. 10-208

SECOND ORDER ON RECONSIDERATION
Adopted: April 24, 2012

Released: April 25, 2012

By the Commission: Commissioner McDowell approving in part and concurring in part.
1.
In this Order, we address several issues raised in petitions for reconsideration of certain
aspects of the USF/ICC Transformation Order.1 The USF/ICC Transformation Order represents a
careful balancing of policy goals, equities, and budgetary constraints. This balance was required in order
to advance the fundamental goals of universal service and intercarrier compensation reform within a
defined budget while simultaneously providing sufficient transitions for stakeholders to adapt. While
reconsideration of a Commission’s decision may be appropriate when a petitioner demonstrates that the
original order contains a material error or omission, or raises additional facts that were not known or did
not exist until after the petitioner’s last opportunity to present such matters, if a petition simply repeats

1

See In the Matter of Connect America Fund, A National Broadband Plan for Our Future, Establishing Just and
Reasonable Rates for Local Exchange Carriers, High-Cost Universal Service Support, Developing an Unified
Intercarrier Compensation Regime, Federal-State Joint Board on Universal Service, Lifeline and Link-Up,
Universal Service Reform – Mobility Fund, WC Docket No. 10-90, GN Docket No. 09-51, WC Docket No. 07-135,
WC Docket No. 05-337, CC Docket No. 01-92, CC Docket No. 96-45, WC Docket No. 03-109, WT Docket No. 10208, Report and Order and Further Notice of Proposed Rulemaking, 26 FCC Rcd 17663 (2011) (USF/ICC
Transformation Order or Order); pets. for review pending sub nom. In re: FCC, No. 11-9900 (10th Cir. filed Dec. 8,
2011).

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arguments that were previously considered and rejected in the proceeding, due to the balancing involved
in this proceeding, we are likely to deny it.2
2.
With this standard in mind, in this Order we take several limited actions stemming from
reconsideration petitions. We grant a request to permit carriers accepting incremental support in Phase I
of the Connect America Fund (CAF) to receive credit for deploying broadband to certain unserved
locations in partially served census blocks, and deny a number of other requests to modify the rules
governing CAF Phase I. In addition, we also grant in part a request by Frontier-Windstream and the
Rural Associations to reconsider the VoIP intercarrier compensation rules adopted in the USF/ICC
Transformation Order. Specifically, we modify our rules to permit LECs, prospectively, to tariff a
transitional default rate equal to their intrastate originating access rates when they originate intrastate toll
VoIP traffic until June 30, 2014. This targeted modification is intended to be transitional and temporary
and does not alter the overall, uniform, national framework for comprehensive intercarrier compensation
reform which was established in the USF/ICC Transformation Order.
I.

CONNECT AMERICA FUND PHASE I INCREMENTAL SUPPORT

3.
In the USF/ICC Transformation Order, the Commission adopted a framework for the
Connect America Fund that would provide support in price cap territories based on a combination of
competitive bidding and a forward-looking cost model. But, as the Commission observed, developing
and implementing a new cost model could be expected to take some time.3 So, in order to immediately
accelerate broadband deployment in such areas, the Commission established Phase I of the CAF to begin
the process of transitioning high-cost support for price cap carriers to the CAF. In Phase I, the
Commission froze current high-cost support for price cap carriers, and, in addition, committed up to $300
million in incremental support to promote deployment of broadband to unserved areas within price cap
carriers’ service territories and their rate of return affiliates’ service territories.4 The $300 million in
incremental support will be allocated among price cap carriers by the use of a simplified forward-looking
cost estimate based on the prior high cost proxy model.5
4.
Participation in CAF Phase I is optional: That is, carriers will be able to choose how much
of their allocated incremental support to accept based on the broadband obligations that accompany the
support. Each carrier will be required to deploy broadband to a number of locations equal to the amount
of incremental support it accepts divided by $775.6 As the Commission explained, that standard was
designed to reach as many locations as possible as cost-effectively as possible—to “spur immediate
broadband deployment to as many unserved locations as possible” with the limited funds available by
“encourag[ing] carriers to use the support in lower-cost areas where there is [nevertheless] no private
sector business case for deployment of broadband.”7 And, to ensure that these deployments reach those
who are otherwise unserved and are unlikely to be served in the near future, the Commission required
carriers to certify, among other things, that the locations they would deploy to are shown as unserved by
fixed broadband with a minimum speed of 768 kbps downstream and 200 kbps upstream on the National

2

See 47 C.F.R. § 1.429.

3

See USF/ICC Transformation Order, 26 FCC Rcd at 17715, para. 132.

4

See id. at 17715, para. 133.

5

See id.

6

See id.

7

See id. at 17715, 17718, paras. 133, 139.

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FCC 12-47

Broadband Map; that, to the best of the carrier’s knowledge, the location is not in fact served; and that
incremental support would not be used to satisfy merger commitments or similar regulatory obligations.8
5.
Various parties ask us to reconsider aspects of these rules. Below, we grant in part a
request by the Independent Telephone & Telecommunications Alliance (ITTA) that we modify the rules
and permit carriers, in certain circumstances, to receive credit in CAF Phase I for deploying to unserved
locations based on a certification that they are unserved, even though such locations are identified as
served on the National Broadband Map. In addition, we deny requests from Frontier and Windstream,
along with the United States Telecom Association (US Telecom), that we reconsider the $775 perlocation deployment requirement. We also deny their request that we permit carriers to receive credit in
CAF Phase I for improving broadband service to underserved locations—locations where broadband is
available, but does not meet the requirements for new CAF Phase I deployments. We also deny
Windstream’s request, in the alternative, that we permit carriers to use CAF Phase I incremental support
to deploy second-mile fiber facilities. Finally, we deny a request by Frontier and Windstream that the
$300 million in incremental support be allocated among carriers by calculating distributions “as if” the
incremental support mechanism were distributing both incremental support and frozen high-cost support,
rather than only incremental support.
6.
First, ITTA asks us to reconsider the rule that carriers receiving CAF Phase I incremental
support must deploy broadband to locations shown on the National Broadband Map as unserved by fixed
broadband.9 ITTA argues that the National Broadband Map in some cases “overstates fixed broadband
coverage”10 and that excluding unserved areas from eligibility for CAF Phase I deployment because they
appear as served on the Map would mean that consumers in those areas would not benefit from CAF
Phase I.11 ITTA, in an ex parte letter joined by several carriers, elaborates on its proposal, asking that we
modify the rules to permit carriers to serve additional locations in three different situations.12
7.
Our analysis of ITTA’s petition is informed by a balancing of considerations. On the one
hand, CAF Phase I is an interim measure intended to accelerate deployment to those unserved locations
that can be reached in the near term. Given our goal of deploying new funding quickly, we believe it is
reasonable to focus deployment on areas where it is clear that no broadband exists, rather than to create a
potentially burdensome and time-consuming process to identify other areas without service. On the other
hand, we do believe that, where adjustments can be made in a way that will not create undue delays,
modifying the rules to permit carriers to accept as much incremental support as possible—and thus deploy
broadband to more unserved locations—would serve the public interest.
8.
ITTA first notes that in some census blocks, the incumbent local exchange provider is the
only provider shown by the National Broadband Map as offering fixed broadband services. But, as ITTA
explains, the reporting methodology used to create the Map “indicates that an entire census block is
served by the [incumbent] LEC even if only a single location in that census block is able to receive
broadband.”13 In such situations, ITTA observes, the incumbent LEC knows which locations are actually

8

See id. at 17720-21, para. 146.

9

See Independent Telephone & Telecommunications Alliance, Petition for Reconsideration, WC Docket No. 10-90,
et al., at 3-6 (filed Dec. 29, 2011).
10

Id. at 3.

11

Id. at 4.

12

See Letter from Genevieve Morelli, President, ITTA, et al., to Marlene H. Dortch, Secretary, FCC, WC Docket
Nos. 10-90, et al. (filed Mar. 6, 2012) (ITTA Mar. 6 ex parte).
13

Id. at 2.

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FCC 12-47

served and which are actually unserved, and it proposes that the carrier should be able to receive credit in
CAF Phase I for deploying broadband to locations that it certifies were not, in fact, already served.14
9.
We conclude that modifying our rule to provide additional flexibility in this situation will
promote the goals of CAF Phase I. 15 Accordingly, we will permit carriers accepting CAF Phase I support
to satisfy their deployment requirement by deploying to locations identified on the National Broadband
Map as served if the Map reflects that the only provider of fixed broadband to the location is the
incumbent carrier itself, the locations are in fact unserved by broadband, and the carrier makes the
certifications required by section 54.312(b)(3) of our rules.16
10.
ITTA also argues that some census blocks are shown in some of the tools available on the
National Broadband Map website as being served by a carrier other than the incumbent LEC, but that the
data underlying the Map “clearly identifies that the non-ILEC provider serves only a part of the census
block.”17 This situation can arise in certain situations when, for example, the data underlying the Map
show that a cable operator offers broadband to only certain locations within a census block.18 ITTA
proposes that a carrier receiving CAF Phase I support be able to receive credit in CAF Phase I for
deploying to locations in such blocks to the extent that the data underlying the Map confirms that the nonILEC provider does not serve the location.19
11.
We conclude that no change to the rules is necessary to address this concern. Section
54.312(b)(3) of our rules requires that a carrier certify that the locations to be served to satisfy its
deployment requirement “are shown as unserved by fixed broadband on the then-current version of the
National Broadband Map.”20 We take this opportunity to clarify that if the data underlying the Map show
that a location is not served by a particular provider, then, for the purposes of this rule, the location is
“shown as unserved” by that provider.
12.
In addition, ITTA claims that there are locations which the National Broadband Map
indicates are served by a carrier other than the incumbent LEC, but which the incumbent LEC reasonably
believes are not, in fact, served by that other provider.21 ITTA proposes that carriers receive credit for
deploying to such areas, if they provide evidence that there are unserved locations in the area.
Specifically, ITTA proposes a CAF Phase I support recipient be permitted to provide a certification that,
to the best of the carrier’s knowledge, there are unserved locations in a census block notwithstanding that
the Map indicates that those locations are served.22 ITTA proposes that the recipient be permitted to—but
not required to—provide “consumer declarations or other supporting evidence” supporting its
14

See id. at 2-3.

15

See Letter from Jeffrey S. Lanning, CenturyLink, to Marlene H. Dortch, Secretary, FCC, WC Docket Nos. 10-90,
et al., attachment at 2 (filed Feb. 27, 2012) (arguing that permitting CenturyLink to deploy to unserved locations in
census blocks marked as served on the National Broadband Map would enable to carrier to add more locations to its
build plan).
16

Section 54.312(b)(3) requires the carrier to certify, among other things, that, to the best of the carrier’s own
knowledge, the location is not in fact served. See 47 C.F.R. § 54.312(b)(3). Accordingly, the carrier will be
certifying that it does not, in fact, already serve the location.
17

See ITTA Mar. 6 ex parte at 3.

18

The data underlying the National Broadband Map are available at http://www.broadbandmap.gov/data-download.

19

See ITTA Mar. 6 ex parte at 3

20

47 C.F.R. § 54.312(b)(3).

21

See ITTA Mar. 6 ex parte at 3.

22

See id.

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FCC 12-47

certification.23 If it does, the certification would not be subject to rebuttal.24 On the other hand, if the
carrier does not provide any declarations or other supporting evidence, other broadband providers in the
area would have up to 30 days to respond to the certification.25 To rebut the CAF Phase I recipient’s
certification, ITTA proposes that those other providers would be required to certify that they can provide
service throughout the relevant area and would be required to provide one or more consumer declarations
from customers who either currently or in the past have subscribed to the provider’s service within the
relevant area.26 If no provider rebutted the CAF Phase I recipient’s certification, the CAF Phase I
recipient would be permitted to deploy to unserved locations in the census block at issue.27
13.
We decline to adopt this aspect of ITTA’s proposal.28 ITTA does not explain how a CAF
Phase I recipient would know which locations—other than any locations for which it has obtained a
consumer’s declaration—in a census block are actually unserved by any other carrier. In addition, we
observe that ITTA’s proposal would require a provider wishing to challenge the CAF Phase I recipient’s
certification to provide a declaration within 30 days from a customer or former customer in the census
block. That task might be quite time consuming given limited resources. Worse, it might not be possible,
because a provider may have no customers in a particular census block, even though it offers service
there. Yet ITTA would apparently have us provide CAF Phase I incremental support to incumbents to
deploy in such locations. On balance, we cannot conclude on the record before us that adopting ITTA’s
proposed process, which may not significantly increase the number of locations that are likely to receive
new broadband,29 would serve the public interest.
14.
ITTA, joined by several carriers, also asks that we permit carriers receiving CAF Phase I
incremental support to deploy broadband to locations that are served by another broadband provider but
where the service offered by that other provider does not meet defined service characteristics.30 They
propose that the other provider offer service of at least 768 kbps sustained download speed, with a usage
limit no lower than 53 gigabytes per month, all at a price no higher than the month-to-month price of the
highest price for a similar product from a wireline provider in the state.31

23

Id.

24

See id.

25

See id. at 4.

26

See id.

27

See id.

28

The Wireless Internet Service Providers Association (WISPA) opposes the ITTA proposal. See Letter from
Stephen Coran to Marlene H. Dortch, Secretary, FCC, WC Docket Nos. 10-90, et al. (filed Mar. 15, 2012). WISPA
argues that parties should work “to address any inaccuracies [with the National Broadband Map], not burden the
CAF Phase I process with post-mapping procedures that are one-sided in favor of the CAF recipient, or which invite
challenge and dispute that will delay provision of funding to unserved areas.” Id. at 4. The American Cable
Association (ACA) and the National Cable Telecommunications Association (NCTA) also oppose the proposal. See
Letter from Ross J. Lieberman, American Cable Association, et al., to Marlene H. Dortch, Secretary, FCC, WC
Docket Nos. 10-90, et al. (filed Mar. 30, 2012). ACA and NCTA argue that ITTA’s proposal raises a number of
evidentiary issues and would also increase the likelihood that support would go to areas where a competitor already
provides, or plans to provide, service. See id. at 2.
29

Indeed, by shifting deployments to areas where others do serve, ITTA’s proposal might lead to fewer previously
unserved locations receiving service.
30

See Letter from Melissa Newman, CenturyLink, et al., to Marlene H. Dortch, Secretary, FCC, WC Docket Nos.
10-90, et al. (filed Mar. 30, 2012).
31

See id.

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15.
We decline to adopt this proposal for several reasons. We acknowledge that some
consumers may live in areas ineligible for CAF Phase I support even though the broadband available to
them does not currently meet our goals. The Commission chose in CAF Phase I, however, to focus
limited resources on deployments to extend broadband to some of the millions of unserved Americans
who lack access to broadband entirely, rather than to drive faster speeds to those who already have
service.32 We are not persuaded that the decision about the more pressing need was unreasonable.
Moreover, we are not persuaded that permitting CAF Phase I recipients to overbuild other broadband
providers represents the most efficient use of limited CAF Phase I support. In addition, we conclude that
we do not have an adequate record at this time to make a determination about how high a competitor’s
price must be—either alone or in combination with usage limits—before we would support overbuilding
that competitor, a critical component of petitioners’ request.
16.
Second, Frontier, Windstream and USTelecom seek reconsideration of the requirement
that a carrier accepting incremental support in CAF Phase I deploy broadband to a number of unserved
locations equal to the amount each carrier accepts divided by $775.33 In particular, these parties take
issue with the use of $775 as a nationwide estimate for the appropriate amount of per-location support.
17.
In adopting the $775 figure, the Commission recognized that, in the absence of a fully
developed cost model, the choice of a per-location support amount necessarily involved an exercise of
judgment. The Commission weighed a variety of considerations, including the fact that resources for this
interim mechanism were limited and the goal to “spur immediate broadband deployment to as many
unserved locations as possible.”34 The Commission also considered several sources of data, including
deployment projects undertaken by a mid-size price cap carrier under the Rural Utilities Service’s
Broadband Initiatives Program, data from analysis done as part of the National Broadband Plan, and an
analysis performed using the ABC plan cost model, submitted by a group of price cap carriers.35
18.
Petitioners argue that the comparison with the BIP deployments (which showed an
average per-location cost of $557) was faulty, because, “[a]s the Commission acknowledges in the Order,
BIP was aimed at improving service to underserved locations as well as deploying to unserved locations”
and only deployments to the unserved count toward satisfaction of the CAF Phase I requirement.36 But as
petitioners concede, the Commission acknowledged this concern in the Order, and took it into account.
Petitioners also complain that the analysis based on the National Broadband Plan and the ABC plan cost
model focuses on deployment costs and fails to account for the cost of maintaining and operating existing
networks.37 That complaint misses the mark, however, because the goal of CAF Phase I is to provide
one-time support to spur broadband deployment, not to create a new source of ongoing support.38
Moreover, as the Commission explained in the Order, one part of the analysis Commission staff
performed suggested that there were approximately 1.75 million unserved locations served by price cap
32

See, e.g., USF/ICC Transformation Order, 26 FCC Rcd at 17712, para. 127.

33

See Frontier Communications Corp. and Windstream Communications, Inc., Petition for Reconsideration and/or
Clarification, WC Docket Nos. 10-90, et al., at 12-20 (filed Dec. 29, 2011) (Frontier-Windstream Petition); United
States Telecom Association, Petition for Reconsideration, WC Docket Nos. 10-90, et al., at 3-5 (filed Dec. 29, 2011)
(US Telecom Petition).
34

See USF/Transformation Order, 26 FCC Rcd at 17718, para. 139.

35

See id. at 17718-19, paras. 140-42.

36

Frontier-Windstream Petition at 13.

37

See id. at 14, 16.

38

See USF/Transformation Order, 26 FCC Rcd at 17719, para. 142 n.227 (noting that because CAF Phase I is
targeted at lower-cost areas, Commission staff assumed that end-user revenue would meet or exceed ongoing costs
for such deployments).

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carriers with costs below $765.39 Even if all $300 million available in Phase I were accepted, carriers
would be required to deploy to only 387,096 locations in total. In other words, the Commission’s
analysis indicates that, nationwide, there are far more unserved locations with costs below our
deployment requirement than will be reached in Phase I. No party disputed the Commission’s analysis on
this point. In sum, nothing in the petitions for reconsideration calls the Commission’s conclusion into
question or suggests that any other nationwide number would be more appropriate.
19.
In any event, the heart of Frontier, Windstream and USTelecom’s argument is that the
Commission should adopt carrier-specific deployment requirements for CAF Phase I rather than use a
nationwide figure for the per-location support offered.40 As Frontier and Windstream explain: “The fact
that some locations within another carrier’s territory might be served for $400 or less does nothing for
another carrier’s consumers when that carrier’s least-expensive unserved locations would cost $1,000 or
more to serve.”41 They assert that they are in the latter situation: because of their history of aggressively
deploying broadband, “there are relatively few, if any, unserved areas left in Petitioners’ service areas that
can be reached for $775 or less.”42 Petitioners propose that we develop a carrier-specific requirement by
using the CostQuest Broadband Analysis Tool (CQBAT), a cost model submitted as part of a proposal by
several large carriers for reform of the high-cost universal service support mechanism.43
20.
We decline to adopt the proposed carrier-by-carrier approach. Petitioners may have
deployed to many or all of the locations in their territories for which $775 represents an adequate subsidy,
but CAF Phase I incremental support, as established in the USF/ICC Transformation Order, was designed
to reach a significant number of relatively low-cost locations, not to ensure that the entire $300 million
offered for Phase I is accepted.44 Indeed, the Commission recognized that some incremental support
would likely be declined, and explained that declined support “may be used in other ways to advance our
broadband objectives pursuant to our statutory authority.”45 To the extent carriers have already deployed
to the low-cost areas in their territories, then those carriers’ remaining unserved areas may be better
candidates for CAF Phase II, which will be identified, using an updated model, along with the appropriate
ongoing subsidy amounts for areas with costs above a specified benchmark.46 Further, we note that in the
Order, the Commission expressly declined to adopt the CQBAT model, explaining that it would be
premature to rely on it in light of the limited opportunity the public had then had to review it.47 Instead,
39

See USF/ICC Transformation Order, 26 FCC Rcd at 17718-19, para. 142.

40

See Frontier-Windstream Petition at 14-29; US Telecom Petition at 3-4.

41

Frontier-Windstream Petition at 15. See also CenturyLink, Opposition, WC Docket Nos. 10-90, et al., at 13-16
(filed Feb, 9, 2012) (CenturyLink Opposition).
42

Frontier-Windstream Petition at 17. See also CenturyLink Opposition at 15 (noting that the $775 requirement
makes it unlikely that CenturyLink will be able to accept funding to deploy to many homes in its former Qwest
territory, where it has already committed to deploying broadband to 92.7 percent of living units without such
funding).
43

See Frontier-Windstream Petition at 18.

44

See also USF/ICC Transformation Order, 26 FCC Rcd at 17719, para. 142 n.227 (“Because CAF Phase I is
structured to provide one-time support, rather than ongoing support, Commission staff [in developing the $775
figure] focused on the modeled costs in the ABC plan cost model for areas where the cost to provide service is lower
. . . . As proposed by the proponents of the ABC plan . . . these areas would not be eligible for ongoing support.”).
45

See id. at 17717-18, para. 138 & n.221. For example, there is a possibility that some of the unobligated CAF
Phase I funds could be rolled over for use in the CAF Phase II.
46

See id. at 17725 para. 156. Compare Frontier-Windstream Petition at 18 (proposing we use such an approach for
CAF Phase I).
47

See USF/ICC Transformation Order, 26 FCC Rcd at 17735, para. 185.

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the Commission initiated an open process to develop a robust cost model for the Connect America Fund,
a process that is now underway. We are not persuaded that we should, at this early stage in that ongoing
process, prejudge the merits of the CQBAT model and adopt it for use in CAF Phase I. Accordingly, we
decline to relax the nationwide deployment requirement and decline to establish carrier-specific
requirements.
21.
Third, several parties ask us to modify the broadband deployment requirement for CAF
Phase I to permit carriers to meet their obligations not just by deploying broadband to previously
unserved locations, but also by upgrading service to locations that are “underserved”—locations, for
example, that are served by broadband at speeds less than the 4 megabits downstream required for new
deployments in CAF Phase I.48 Frontier and Windstream argue that underserved areas should be eligible
for support in CAF Phase I because, in order to deploy broadband to unserved locations, “facility
upgrades in underserved areas may be required,” and, what is more, those investments may be “very
significant.”49 As explained above, however, the Commission’s focus in CAF Phase I was to spur
broadband deployment to consumers who lack access to broadband, not to improve service for those who
already have access to some form of high-speed Internet access.50 We recognize that as they extend
broadband to previously unserved areas, carriers may need to upgrade network facilities shared by both
served and unserved locations. However, we believe the $775 per newly served location appropriately
takes account of the cost of these upgrades. That is, we conclude it is only appropriate to support such
shared investments through CAF Phase I to the extent that they do not drive the required subsidy per
unserved location above $775.
22.
Fourth, in an ex parte letter, Windstream offers a further alternative to the nationwide
deployment requirement.51 Windstream proposes that carriers should be permitted to use CAF Phase I
support to deploy second-mile fiber in areas not currently served by fiber.52 Windstream argues that the
existing rules will penalize the customers of those carriers, like Windstream, that have already deployed
Digital Subscriber Line Access Multiplexers (DSLAMs) fed by existing copper facilities to provide at
least some level of broadband service in some of their most rural areas, even where there is no business
case to deploy fiber to the DSLAM.53 As Windstream observes, residential broadband bandwidth demand
has increased substantially in recent years.54 Providing support for fiber in such areas, Windstream
argues, is essential to maintain existing service levels for their consumers; driving fiber deeper into the
network would also reduce the cost of connecting rural wireless cell sites to fiber facilities.55
23.
We decline to adopt Windstream’s proposal for second-mile fiber support. While we
agree with Windstream that deploying second-mile fiber facilities is a worthwhile endeavor, we reiterate
48

See Frontier-Windstream Petition at 19; US Telecom Petition at 4-5.

49

Frontier-Windstream Petition at 19.

50

See, e.g., USF/ICC Transformation Order, 26 FCC Rcd at 17712, para. 127.

51

See Letter from Jennie Chandra, Windstream Communications, Inc., to Marlene H. Dortch, Secretary, FCC, WC
Docket No. 10-90, et al. (filed Mar. 21, 2012) (Windstream Mar. 21 ex parte). See also Letter from Jennie Chandra,
Windstream Communications, Inc., to Marlene H. Dortch, Secretary, FCC, WC Docket No. 10-90, et al. (filed Apr.
16, 2012).
52

See Windstream Mar. 21 ex parte. See also Letter from Tom Stanton, Chairman and Chief Executive Officer,
Adtran, to Marlene H. Dortch, Secretary, FCC, WC Docket No. 10-90, et al. (filed March 28, 2012) (supporting
Windstream’s proposal).
53

See Windstream Mar. 21 ex parte.

54

See id. at 2.

55

See id.

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that the focus of CAF Phase I is a relatively narrow one: to spur deployment of broadband to relatively
low-cost locations that nevertheless currently have no service at all, while we implement CAF Phase II. It
is not intended to be a long-term program or to serve all broadband deployment needs, such as the need to
eventually replace existing broadband facilities to meet projected demand. Instead, the need for such
investments is more appropriately considered in the broader context of the CAF Phase II mechanism.
24.
Finally, Frontier and Windstream request that we clarify or reconsider how the $300
million allocated to CAF Phase I will be distributed among carriers. The USF/ICC Transformation Order
freezes existing high cost support and uses the CAF Phase I incremental support mechanism to allocate an
additional $300 million. Frontier and Windstream assert that there are two different ways that this $300
million could be distributed through the incremental support mechanism. In the first, the incremental
support allocation mechanism could be applied only to the $300 million in incremental support. In the
second, preferred by petitioners, all high-cost support, both frozen support and the $300 million
incremental support, would be distributed “as if” it were allocated using the new mechanism, subject to a
“hold harmless” rule that would ensure no carrier would receive less support than it previously received.56
25.
According to Frontier and Windstream, the two approaches “differ markedly in how they
allocate the incremental $300 million.”57 That is so because the CAF Phase I incremental support
allocation mechanism allocates support “from the top down.” Specifically, a per-location cost is
calculated for each wire center; support is then calculated for the carrier serving that wire center based on
the amount by which that per-location cost exceeds a funding threshold, multiplied by the total number of
locations in the wire center.58 The funding threshold is set so that the specified amount of support, either
$300 million or $1.3 billion, is allocated.59 Setting the funding threshold to distribute $1.3 billion would
of course result in a lower threshold than setting it to distribute $300 million, and a lower threshold would
mean that more wire centers have per-location costs above the threshold. Petitioners argue that spreading
incremental support based on a broader range of high-cost wire centers (those above the threshold set with
$1.3 billion) “would be far more equitable” than the alternative approach.60 In addition, they argue, their
proposal is more consistent with the support framework that will be in place during CAF Phase II, when
the very highest-cost census blocks will likely be served through satellite, fixed wireless, or other
technologies rather than wireline broadband provided by incumbent carriers.61 CenturyLink opposes
these petitioners’ proposal, arguing that the Commission’s “straightforward calculation” was “sensible
and justified,” as compared to the multi-stage, more complex calculation advocated by Frontier and
Windstream.62
26.
We decline to change the CAF Phase I support calculation as advocated by Frontier and
Windstream. We remain unconvinced that it would be reasonable to allocate the $300 million in
incremental CAF Phase I support “as-if” a different amount of support were being allocated.63 CAF
56

See Frontier-Windstream Petition at 4-9.

57

Id. at 8.

58

See USF/ICC Transformation Order, 26 FCC Rcd at 17716, para. 135.

59

See id. at 17716, para. 136.

60

Fronter-Windstream Petition at 9.

61

Id. at 10.

62

CenturyLink Opposition at 12.

63

Petitioners do not ask us to actually allocate the full $1.3 billion through the CAF Phase I incremental support
mechanism. Nor would we be inclined to do so, given the significant disruptions in support flows that would cause.
For example, even a carrier that received additional funding under such an approach might receive that support for
wire centers in different states than it currently receives funding.

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Phase I is an interim support mechanism, designed to be a simple, easily administered tool to provide a
boost to broadband deployment in the near term while the Wireline Competition Bureau develops a
support model for CAF Phase II. We acknowledge that there were other ways the Commission could
have established the amounts of support each carrier would be eligible for in this interim mechanism. But
Frontier and Windstream have not shown that their proposed methodology, which would add a degree of
complexity for an uncertain benefit,64 would likely serve the goals of CAF Phase I more effectively than
the methodology adopted in the Order, and we decline to adopt it.
II.

INTERCARRIER COMPENSATION FOR VOIP TRAFFIC

27.
Background. The USF/ICC Transformation Order comprehensively reformed the
intercarrier compensation system.65 Significantly, the Commission launched long-term intercarrier
compensation reform by adopting a bill-and-keep methodology as the ultimate uniform, national
methodology for all telecommunications traffic exchanged with a local exchange carrier (LEC). The
USF/ICC Transformation Order began this transition to bill-and-keep with terminating switched access
rates. In addition, the Commission addressed specific intercarrier compensation issues involving
commercial mobile radio service (CMRS)-LEC compensation and made clear the prospective payment
obligations for certain “VoIP” traffic, referred to in the USF/ICC Transformation Order as "VoIP-PSTN"
traffic.66
28.
In light of new evidence in the record,67 we reconsider an aspect of the transitional
intercarrier compensation framework adopted for originating VoIP traffic.68 For purposes of the
USF/ICC Transformation Order, VoIP-PSTN traffic “is ‘traffic exchanged over PSTN facilities that
originates and/or terminates in IP format.’ In this regard, we focus specifically on whether the exchange
of traffic between a LEC and another carrier occurs in Time-Division Multiplexing (TDM) format (and
not in IP format), without specifying the technology used to perform the functions subject to the
associated intercarrier compensation charges.”69 As with the USF/ICC Transformation Order more

64

While we agree that their proposal would allocate funding differently than the mechanism the Commission
adopted, we are not persuaded that it such an alternative allocation would be better. In particular, we do not think
petitioners have adequately explained why they believe their proposal results in a more equitable distribution. Nor
are we persuaded by petitioners’ claim that their proposal is more consistent with the support framework for CAF
Phase II, when the costliest census blocks will likely be served through technologies other than wireline broadband
provided by incumbent carriers. Such very-high-cost census blocks might or might not be in the highest cost wire
centers.
65

See generally USF/ICC Transformation Order, 26 FCC Rcd at 17872-44, paras. 648-1008.

66

In this Order we use the term “VoIP traffic” or the like as synonymous with the terms “VoIP-PSTN traffic,” or
“VoIP-PSTN intercarrier compensation,” or the like as used in the USF/ICC Transformation Order. USF/ICC
Transformation Order, 26 FCC Rcd at 18005-06, para. 940. We do so to avoid potential confusion given some
commenters’ use of terms like “PSTN-originated” VoIP traffic or “PSTN-VoIP” when all such traffic falls under the
definition of VoIP traffic as defined in the USF/ICC Transformation Order. See id. at 18005-06, para. 940 n.1891.
67

For the reasons described below, we find it in the public interest to rely on this evidence and the associated
arguments. See 47 C.F.R. § 1.429(b)(3).
68

USF/ICC Transformation Order, 26 FCC Rcd at 18002-30, paras. 933-75; 47 C.F.R. §§ 51.701(b)(3), 51.703(c),
51.913. The VoIP intercarrier compensation rules subsequently were clarified in certain respects. See Connect
America Fund et al., WC Docket No. 10-90 et al., Order, DA 12-147 (Wir. Comp. Bur. rel. Feb. 3, 2012) (First
Bureau Clarification Order); Connect America Fund et al., WC Docket No. 10-90 et al., Order, DA 12-298 (Wir.
Comp. Bur. rel. Feb. 27, 2012) (Second Bureau Clarification Order).
69

USF/ICC Transformation Order, 26 FCC Rcd at 18005-06, para. 940 (citations omitted). See also id. at 1800507, paras. 940 n.1891, 941 (further discussing the scope of what we refer to here as “VoIP” traffic, which includes
traffic that originates in IP, terminates in IP, or both). Pursuant to that definition, traffic that terminates in IP format
(continued....)

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broadly, the VoIP intercarrier compensation framework weighed the benefits of “a more measured
transition away from carriers’ reliance on intercarrier compensation as a significant revenue source.”70
The Commission also found, however, that VoIP traffic had been a particular source of intercarrier
compensation disputes and litigation. As a result, “carriers may receive some intercarrier compensation
payments at something less than the full intercarrier compensation rates charged in the case of traditional
telephone service” or, in some cases, no payment at all.71 Balancing these and additional considerations
led the Commission to adopt a middle ground that, prospectively, neither “subject[ed] VoIP traffic to the
pre-existing intercarrier compensation regime that applies in the context of traditional telephone service,
including full interstate and intrastate access charges,”72 nor “immediately adopt[ed] a bill-and-keep
methodology for VoIP traffic” or a very low rate.73 Instead, the Commission’s approach permitted LECs,
starting December 29, 2011, to tariff default intercarrier compensation for both originating and
terminating toll VoIP traffic at rates equal to interstate access rates, with default intercarrier compensation
for other VoIP traffic at the otherwise-applicable reciprocal compensation rates.74 The Commission also
adopted measures to ensure that its approach to VoIP intercarrier compensation was symmetrical to
minimize marketplace distortions.75 This symmetrical approach seeks to provide all LECs the
opportunity to collect intercarrier compensation under the same VoIP intercarrier compensation
framework for the functions they (and/or their retail VoIP provider partner) perform in originating and/or
terminating VoIP traffic.76
29.
Frontier and Windstream and certain rural associations filed petitions, seeking, among
other things, clarification that originating intrastate toll VoIP traffic was subject to default rates equal to
intrastate originating access under the USF/ICC Transformation Order.77 If the Commission instead
concludes that default rates equal to interstate originating access rates applied to all originating toll VoIP
traffic under the USF/ICC Transformation Order, those petitioners advocate that the Commission
reconsider that decision.78 In light of both Petitions’ focus on VoIP traffic that originates in TDM format,
some commenters expressed concern that the resulting approach would undermine the symmetry of the
VoIP intercarrier compensation framework adopted in the USF/ICC Transformation Order.79 Other
commenters opposed the Petitions more broadly, arguing that the USF/ICC Transformation Order

(...continued from previous page)
is VoIP traffic regardless of whether it originates in IP or TDM format, so long as it otherwise meets the definition
of VoIP traffic. Id.; 47 C.F.R. §§ 51.701(b)(3), 51.913.
70

USF/ICC Transformation Order, 26 FCC Rcd at 18012, para. 952.

71

Id. at 18003-05, paras. 937-38.

72

Id. at 18009, para. 948.

73

Id. at 18012-13, paras. 952-53.

74

Id. at 18002, 18008, 18011, 18017-18025, paras. 933, 944, 949 n.1919, 959, 961-67; 47 C.F.R. §§ 51.701(b)(3),
51.703(c), 51.913.
75

USF/ICC Transformation Order, 26 FCC Rcd at 18007-08, 18025-28, paras. 942, 968-71; 47 C.F.R. §§ 51.703(c),
51.913(b); Second Bureau Clarification Order at paras. 2-5.
76

USF/ICC Transformation Order, 26 FCC Rcd at 18007-08, 18025-28, paras. 942, 968-71; 47 C.F.R. §§ 51.703(c),
51.913(b); Second Bureau Clarification Order at paras. 2-5.
77

Frontier–Windstream Petition at 21-29; NECA et al. Petition for Reconsideration and Clarification, WC Docket
No. 10-90 et al. at 34 (filed Dec. 29, 2011) (Rural Associations Petition).
78

Frontier-Windstream Petition at 21, 27; Rural Associations Petition at 34-35.

79

See, e.g., Comcast Comments (filed Feb. 9, 2012) at 8-9; NCTA Comments (filed Feb. 9, 2012) at 14-15; Cox
Reply (filed Feb. 21, 2012) at 7-8.

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established default rates equal to interstate originating access for originating intrastate toll VoIP traffic,
and that the Commission should not deviate from the policy balance underlying that approach.80
30.
Discussion. As discussed below, we do not adopt the Frontier-Windstream Petition’s and
Rural Associations Petition’s interpretation of the VoIP intercarrier compensation rules adopted in the
USF/ICC Transformation Order. However, arguments and evidence from those parties and supporting
commenters, persuade us to modify the VoIP ICC rules on reconsideration in one respect: we permit
LECs to tariff default charges equal to intrastate originating access for originating intrastate toll VoIP
traffic (including traffic that originates in IP, terminates in IP, or both)81 at intrastate rates until June 30,
2014. For all interstate toll VoIP traffic, interstate access rates continue to apply consistent with the
default rates adopted in the USF/ICC Transformation Order.
31.
The record reveals that there has been some uncertainty regarding the default origination
charges for intrastate toll VoIP traffic under the framework adopted in the USF/ICC Transformation
Order.82 However, we ultimately are unpersuaded by the Frontier-Windstream Petition’s and Rural
Associations Petition’s rationales for interpreting the USF/ICC Transformation Order to apply default
origination charges equal to intrastate—rather than interstate—originating access for intrastate toll VoIP
traffic. We disagree with claims that statements in other sections of the USF/ICC Transformation Order
discussing, for example, the Commission’s general intent to address reductions to originating access in
the FNPRM, imply that the Commission took a particular approach to origination charges for VoIP
traffic.83 The USF/ICC Transformation Order adopted a distinct prospective intercarrier compensation
framework for VoIP traffic based on its findings specific to that traffic.84 Contrary to the Petitions’
claims, the USF/ICC Transformation Order’s treatment or discussion of originating access charges in
other contexts do not constrain the interpretation of permissible origination charges for toll VoIP traffic.85
80

See, e.g., AT&T Comments (filed Feb. 9, 2012) at 38-39; Level 3 Opposition (filed Feb. 9, 2012) at 5-6; Verizon
Opposition (filed Feb. 9, 2012) at 7-11.
81

See supra note 69.

82

See, e.g., Verizon Opposition (filed Feb. 9, 2012) at 10 (observing that “parties are not consistently implementing
the new [VoIP] rates with respect to originating charges in state tariffs” and thus “disputes are popping up all over
the country”).
83

See, e.g., Frontier-Windstream Petition at 21-25; Rural Associations Opposition (filed Feb. 9, 2012) at 20-21.

84

See, e.g., USF/ICC Transformation Order, 26 FCC Rcd at 18008, para. 944 (“adopt[ing] transitional rules
specifying, prospectively, the default compensation for [VoIP] traffic”); id. at 18009, para. 945 n.1905 (discussing
the application of the equivalent of the historical enhanced service provider (ESP) exemption in the transitional
VoIP framework (where it does not apply) as compared to the transitional framework for other traffic (where it does
apply)); id. at 18009, para. 947 (in contrast to other traffic that clearly had been subject to historical intercarrier
compensation rules, the application of such requirements for VoIP traffic “would require the Commission to
enunciate a policy rationale for expressly imposing that regime on VoIP traffic in the face of the known flaws of
existing intercarrier compensation rules and notwithstanding the recognized need to move in a different direction”);
id. (finding that “to the extent that particular carriers historically have relied on access revenues to subsidize local
services, the record is clear that many providers did not pay the same intercarrier compensation rates for VoIP traffic
that would have applied to traditional telephone service traffic”). See also, e.g., Verizon Opposition (filed Feb. 9,
2012) at 8. In addition, structurally, the Commission addressed intercarrier compensation for VoIP traffic in a
distinct section separate from its transitional intercarrier compensation framework for other traffic more generally,
reinforcing its distinct treatment from other traffic as an element of the overall transitional intercarrier compensation
rules adopted in the Order. See, e.g., USF/ICC Transformation Order, 26 FCC Rcd at 17904-56, 18003-30, Section
XII (Comprehensive Intercarrier Compensation Reform), Section XIV (Intercarrier Compensation For VoIP
Traffic).
85

See, e.g., Frontier-Windstream Petition at 21-25. See also, e.g., Cbeyond et al. Comments (filed Feb. 9, 2012) at
3; Rural Associations Opposition (filed Feb. 9, 2012) at 20-21; Frontier-Windstream Reply (filed Feb. 21, 2012) at
2-7.

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In addition, although the USF/ICC Transformation Order cites illustrative examples of the operation of
the VoIP intercarrier compensation framework for termination charges,86 the text and the implementing
rules demonstrate that the intercarrier compensation framework for toll VoIP traffic limits both default
origination and termination charges to the level of interstate access rates.87 Further, although the
Commission built upon the ABC Plan in adopting a VoIP intercarrier compensation framework, the
Commission did not adopt the ABC Plan, and as a result, individual commenters’ interpretations of the
ABC Plan do not dictate a different interpretation of the USF/ICC Transformation Order.88
32.
More fundamentally, these arguments reflect a mistaken understanding of key elements
of the USF/ICC Transformation Order.89 Arguments that setting default rates equal to intrastate
originating access are necessary to avoid “flash cuts” or “reductions” in intercarrier compensation assume
that LECs were receiving intrastate originating access for intrastate toll VoIP traffic under the status quo
86

See, e.g., USF/ICC Transformation Order, 26 FCC Rcd at 18007-08, 18020-22, paras. 942, 963. The need to
provide clarity regarding the framework’s application to originating toll VoIP traffic explains the Commission’s
explicit reference to both “originating and terminating” interstate access rates in paragraph 961 of the Order,
contrary to the Frontier-Windstream Petition’s claim. See Frontier-Windstream Petition at 25 n.57. See also, e.g.,
Frontier-Windstream Reply (filed Feb. 21, 2012) at 8-9. Further, contrary to commenters’ claims, see FrontierWindstream Reply (filed Feb. 21, 2012) at 8, footnote 1976’s reference to originating access rates being phaseddown pursuant to a transition considered in the FNPRM remains valid under this interpretation, because the FNPRM
clearly contemplates future reforms to interstate originating access rates. USF/ICC Transformation FNPRM, 26
FCC Rcd at 18109-18112, paras. 1298-1305.
87

As the Order emphasized “toll [VoIP] traffic will be subject to charges not more than originating and terminating
interstate access rates.” USF/ICC Transformation Order, 26 FCC Rcd at 18019-20, para. 961. See also, e.g., id. at
18002, para. 933 (“Under this transitional framework . . . Default intercarrier compensation rates for toll [VoIP]
traffic are equal to interstate access rates”); id. at 18008, 944 (“Default charges for ‘toll’ [VoIP] traffic will be equal
to interstate access rates applicable to non-VoIP traffic, both in terms of the rate level and rate structure”); id. at
18018, para. 959 (“In addition, under the framework adopted here, most default rates actually paid for toll [VoIP]
traffic—equal to interstate access rates—will be the same regardless of whether the [VoIP] toll traffic were
considered to be solely interstate or both interstate and intrastate”). The Commission’s implementing rules likewise
reflect this interpretation. 47 C.F.R. § 51.913(a) (“Access Reciprocal Compensation subject to this subpart
exchanged between a local exchange carrier and another telecommunications carrier in Time Division Multiplexing
(TDM) format that originates and/or terminates in IP format shall be subject to a rate equal to the relevant interstate
access charges specified by this subpart.”). See also 47 C.F.R. § 51.913(a) (explaining that the compensation
subject to this subpart is for “telecommunications traffic exchanged between telecommunications providers that is
interstate or intrastate exchange access, information access, or exchange services for such access, other than special
access”); 51.903(h) (defining “Access Reciprocal Compensation” for purposes of this subpart consistent with that
scope).
88

The ABC Plan as filed proposed that the Commission classify all VoIP traffic as interstate. See, e.g., ABC Plan,
Attach. 5 at 18 (proposing that the Commission find that “all VoIP traffic . . . is inseverable and, therefore, interstate
for jurisdictional purposes”). Although the Commission ultimately did not rely on that particular proposal in the
USF/ICC Transformation Order, under the terms of the ABC Plan there is no explanation of how the Commission
would (or could) both classify all VoIP traffic as interstate and nonetheless adopt intrastate originating access rates
as the default for originating certain toll VoIP traffic. Thus, even if the interpretation of the ABC Plan is relevant,
that plan, as filed, does not clearly support the interpretation of it adopted by some commenters. See, e.g., FrontierWindstream Petition at 23-24, 25-26; Frontier-Windstream Reply (filed Feb. 21, 2012) at 9.
89

Commenters also cite the Commission’s desire to “guard against new forms of arbitrage.” See, e.g., FrontierWindstream Reply (filed Feb. 21, 2012) at 13 (quoting USF/ICC Transformation Order, 26 FCC Rcd at 18006,
para. 941). See also Rural Associations Petition at 34 (claiming difficulty in identifying traffic that terminates in
IP). However, they do not demonstrate that the Order should be interpreted categorically to preclude any individual
rules that could preserve incentives for any form of arbitrage, nor that the procedural protections adopted in the
Order are inadequate to address any such incentives. See, e.g., USF/ICC Transformation Order, 26 FCC Rcd at
18011-12, para. 950 (discussing procedural protections adopted in the VoIP intercarrier compensation rules to guard
against arbitrage). See also, e.g., Verizon Opposition (filed Feb. 9, 2012) at 10.

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prior to that Order.90 Although the marketplace evidence in the record on reconsideration demonstrates
the accuracy of that position in many cases, that assumption is not reflected in the USF/ICC
Transformation Order itself. Rather, based on the available record evidence, the Commission found as a
practical matter that compensation for VoIP traffic was widely subject to dispute and varied outcomes,
and that “the record is clear that many providers did not pay the same intercarrier compensation rates for
VoIP traffic that would have applied to traditional telephone service traffic.”91 The Commission did not
reach a different conclusion in the case of originating access. Consequently, the USF/ICC
Transformation Order itself does not provide a basis for interpreting the requirements of that Order
against a baseline assumption that intrastate originating access historically had been received for intrastate
toll VoIP traffic.
33.
The record on reconsideration, however, indicates that prior to the USF/ICC
Transformation Order, there were fewer disputes and instances of non-payment or under-payment of
origination charges billed at intrastate originating access rates for intrastate toll VoIP traffic than was the
case for terminating charges for such traffic, particularly for calls that originated in TDM format.92
Consequently, several commenters present evidence that they will experience annual reductions in
originating access revenues under the VoIP intercarrier compensation framework adopted in the USF/ICC
Transformation Order.93
34.
This new evidence regarding the status quo prior to the USF/ICC Transformation Order
persuades us to reconsider the balancing of policy interests underlying the Order’s approach to VoIP
traffic, consistent with Petitioners’ request in the alternative to reconsider those rules. In light of this new
evidence, we conclude that an appropriate, measured transition for these revenues is somewhat different
from the transition that the Commission anticipated based on its findings in the USF/ICC Transformation

90

See generally, Frontier-Windstream Petition at 21-29; Cbeyond et al. Comments (filed Feb. 9, 2012) at 4-5; Rural
Associations Opposition (filed Feb. 9, 2012) at 20-21; Frontier-Windstream Reply (filed Feb. 21, 2012) at 3-7, 1011.
91

USF/ICC Transformation Order, 26 FCC Rcd at 18010, para. 948. In addition, the USF/ICC Transformation
Order reflected the first occasion where the Commission expressly addressed the intercarrier compensation rules
applicable to VoIP traffic generally, and it did so by exercising its authority to adopt purely prospective rates,
remaining silent as to appropriate outcomes prior to the framework adopted in the Order. Id. at 18003, 18005,
18008-09, paras. 935, 939, 945. See also USF/ICC Transformation NPRM, 26 FCC Rcd at 4744-45, para. 608
(“The Commission has never addressed whether interconnected VoIP is subject to intercarrier compensation rules
and, if so, the applicable rate for such traffic.”).
92

See, e.g., Letter from Samuel L. Feder, counsel for Cablevision and Charter, to Marlene H. Dortch, Secretary,
FCC, WC Docket No. 10-90 et al. at 2 (filed Mar. 12, 2012) (Cablevision-Charter Mar. 12, 2012 Ex Parte Letter);
Letter from Malena F. Barzilai Regulatory Counsel / Director, Federal Government Affairs, Windstream, to Marlene
H. Dortch, Secretary, FCC, WC Docket No. 10-90 et al. at 2 (filed Mar. 5, 2012) (Windstream Mar. 5, 2012 Ex
Parte Letter). We rely on this evidence only insofar as it provides a factual description of the operation of the
marketplace during relevant time periods. As in the USF/ICC Transformation Order, we do not address preexisting
law prior to the prospective framework adopted in the USF/ICC Transformation Order. USF/ICC Transformation
Order, 26 FCC Rcd at 18003, 18008-09, paras. 935, 945.
93

See, e.g., NCTA Mar. 12, 2012 Ex Parte Letter at 1; Cablevision-Charter Mar. 12, 2012 Ex Parte Letter at 2;
Letter from Michael R. Romano, Senior Vice President – Policy, NTCA, to Marlene H. Dortch, Secretary, FCC, WC
Docket No. 10-90 et al. at 2 (filed Mar. 12, 2012) (NTCA Mar. 12, 2012 Ex Parte Letter); Comcast Mar. 8, 2012 Ex
Parte Letter at 2; Windstream Mar. 5, 2012 Ex Parte Letter at 2; Letter from Thomas Jones, counsel for Cbeyond et
al. to Marlene H. Dortch, Secretary, FCC, WC Docket No. 10-90 et al. at 1-3 (filed Mar. 1, 2012) (Cbeyond et al.
Mar. 1, 2012 Ex Parte Letter); Time Warner Cable Mar. 1, 2012 Ex Parte Letter at 2; Frontier Feb. 23, 2012 Data
Ex Parte Letter at 1-2.

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Order.94 Consequently, on reconsideration we find it appropriate to permit LECs, prospectively, to tariff
a rate equal to their intrastate originating access rates when they originate intrastate toll VoIP traffic,
albeit for a finite period of time.
35.
In particular, consistent with Frontier’s proposal,95 we amend Part 51 of our rules, as
reflected in the attached Appendix A, to permit LECs to tariff default rates equal to their intrastate
originating access rates when they originate intrastate toll VoIP traffic from the effective date of our the
revised rules96 until June 30, 2014—effective July 1, 2014, LECs will be permitted to tariff default rates
for such traffic equal to their interstate originating access rates.97 This is to be considered a transitional
94

USF/ICC Transformation Order, 26 FCC Rcd at 18012-13, para. 952. By the same token, the record does not
reveal that origination charges for VoIP traffic were never subject to dispute, nor that such disputes could not arise
in the future. See, e.g., Letter from Maggie McCready, Vice President, Federal Regulatory Affairs, Verizon, to
Marlene H. Dortch, Secretary, FCC, WC Docket No. 10-90, Attach. at 7 (filed Mar. 23, 2012). This reinforces our
conclusion that, although some action on reconsideration is warranted based on the new evidence, limiting that
action to a finite period of time adequately provides carriers with a measured transition while balancing the
Commission’s other goals, as discussed below.
95

Letter from Michael D. Saperstein, Jr., Director of Federal Regulatory Affairs, Frontier, to Marlene H. Dortch,
Secretary, FCC, WC Docket No. 10-90 et al. at 2 (filed Mar. 20, 2012) (suggesting two years as a reasonable
period).
96

To enable providers time to implement changes to their intrastate tariffs and business plans, see Letter from Erin
Boone, Senior Corporate Counsel, Federal Regulatory Affairs, Level 3, to Marlene H. Dortch, Secretary, FCC, WC
Docket Nos. 10-90 et al. at 2 (filed Mar. 20, 2012), we are persuaded that permitting a limited amount of additional
time prior to the revised rules becoming effective is appropriate. Accordingly, our revised rules will become
effective 45 days after publication in the Federal Register. This timing balances the potential burden on carriers of
revising a number of intrastate tariffs and other business arrangements with the need for clarity and our timely
implementation of revised rules to accommodate a measured transition. For the same reasons, if carriers are relying
on factors to identify the traffic subject to rate revisions, carriers should use the most reliable and accurate data they
have available for the relevant time period to develop their factors for the first quarter that the revised rules are
effective. Thereafter, carriers will have the data necessary to develop more accurate factors for subsequent time
periods See Letter from Erin Boone, Senior Corporate Counsel, Federal Regulatory Affairs, Level 3, to Marlene H.
Dortch, Secretary, FCC, WC Docket Nos. 10-90 et al. at 2 (filed Apr. 16, 2012).
97

The applicable intrastate originating access rate is the LEC’s otherwise-existing intrastate originating access rate
at the time. Currently, for price cap carriers (and competitive LECs benchmarking to such carriers), the default rate
will be the originating access rates as capped by the USF/ICC Transformation Order. See USF/ICC Transformation
Order, 26 FCC Rcd at 17934-36, para. 801 & fig. 9 (capping price cap carriers’ intrastate originating access rates as
of the effective date of the rules). For rate-of-return carriers (and competitive LECs benchmarking to such carriers),
the default rate will be the intrastate originating access rates as of the date the tariff (or other instrument) is filed
addressing origination charges for intrastate toll VoIP traffic, because rate-of-return carriers’ intrastate originating
access rates were not capped by the USF ICC Transformation Order. See id. See also Letter from Kathleen Q.
Abernathy, Chief Legal Officer and Executive Vice President, Regulatory and Government Affairs, Frontier, et al.,
to Hon. Julius Genachowski, Chairman, FCC, et al. at 1 (filed Mar. 8, 2012) (Frontier et al. Mar. 8, 2012 Ex Parte
Letter (proposing certain intrastate originating access rate levels that would establish the default origination rates for
intrastate toll VoIP traffic). These rates are subject to modification in the context of Commission action regarding
originating access more generally as part of the FNPRM. See generally USF/ICC Transformation FNPRM. To the
extent that the Commission acts to reduce originating access rates more quickly in that context, those new rates will
form the basis of the default origination charges for toll VoIP traffic. Our reconsideration here does not adopt the
Frontier-Windstream Petition’s proposal that, “the Commission, at the very least, would need to permit LECs to use
the recovery mechanism to recover lost originating access revenues.” Frontier-Windstream Petition at 28-29.
Related issues, such as advocacy regarding the elimination of equal access obligations due to reduced originating
access revenues are more appropriate for consideration in the context of a rulemaking proceeding or a forbearance
petition. See Letter from Michael R. Romano, Senior Vice President – Policy, NTCA, to Marlene H. Dortch,
Secretary, FCC, WC Docket Nos. 10-90 et al., at 2 (filed Apr. 13, 2012); Letter from Jennie B. Chandra, Senior
Counsel, Federal Policy, Windstream, to Marlene H. Dortch, Secretary, FCC, WC Docket No. 10-90 et al., at 1
(filed Apr. 19, 2012).

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rate. We do not find it appropriate to permit default origination charges equal to intrastate access rates
indefinitely, consistent with the Commission’s recognized need to “reduce disputes and provide greater
certainty to the industry regarding intercarrier compensation revenue streams while also reflecting the
Commission’s move away from the pre-existing, flawed intercarrier compensation regimes that have
applied to traditional telephone service”98 under the framework adopted in the USF/ICC Transformation
Order.99 We are mindful that some providers were receiving compensation for originating VoIP traffic,100
however, we consider the transition of origination charges for intrastate toll VoIP traffic in the context of
the Commission’s overall VoIP intercarrier compensation framework. Under this framework, most
providers will receive, either via negotiated agreements or via tariffed charges, additional revenues for
previously disputed terminating VoIP calls and will also realize savings associated with reduced litigation
and disputes. In light of these benefits, indefinitely permitting origination charges at the level of intrastate
access for prospective intrastate toll VoIP traffic is not necessary to ensure a measured transition and is
indeed in tension with our overall policy goal of encouraging a migration to all IP networks and moving
away from reliance on ICC revenues.
36.
Indeed, the USF/ICC Transformation Order makes clear the Commission’s goal of
promoting migration to IP services.101 As VoIP providers observe, actions that may benefit some
providers through a more measured transition away from reliance on intercarrier compensation also
burden other providers that are required to bear those costs.102 Other providers likewise explain that these
costs flow through to their services and, in turn, the services their customers provide.103 In light of these
considerations, we believe that a measured transition with a time limit on the use of intrastate access
charges as a default for that time period is necessary to ensure that migration to IP services is adequately
promoted. The time limit we adopt falls well within our uniform, national framework for comprehensive
intercarrier compensation reform which set forth the overall transition for intercarrier compensation rates
established in the USF/ICC Transformation Order. Within this time period, we predict that carriers will
have had the opportunity to make significant progress transitioning their business plans away from
extensive reliance on intercarrier compensation.104
98

USF/ICC Transformation Order, 26 FCC Rcd at 18009, para. 946. See also, e.g., id. at 18000, para. 930
(observing that “[t]he decisions we adopt today will provide LECs, including incumbent LECs, with more certain
revenue throughout the transition, and will also allow them to avoid the litigation expense associated with attempts
to collect access charges for VoIP traffic”).
99

See also, e.g., Verizon Opposition (filed Feb. 9, 2012) at 9 (discussing the balancing of “the Commission’s
objective to phase out all access charges—both terminating and originating charges—over time” and the recognized
flaws in the preexisting intercarrier compensation rules); Verizon Mar. 6, 2012 Ex Parte Letter at 1-2 (discussing the
balancing of “the Commission’s objectives to avoid applying the legacy access charge regime to IP traffic”).
100

At the same time, consistent with the USF/ICC Transformation Order, we continue to address intercarrier
compensation for VoIP only on a prospective basis. See, e.g., USF/ICC Transformation Order, 26 FCC Rcd at
18002-03, 18009-10, paras. 933, 935, 946-48.
101

See, e.g.,USF/ICC Transformation Order, 26 FCC Rcd at 18025, para. 968. See also, e.g., Letter from Erin
Boone, Senior Corporate Counsel, Federal Regulatory Affairs, Level 3, to Marlene H. Dortch, Secretary, FCC, WC
Docket Nos. 10-90 et al. at 3 (filed Mar. 14, 2012) (Level 3 Mar. 14, 2012 Ex Parte Letter).
102

See, e.g., Letter from Glenn S. Richards, Executive Director, VON Coalition, to Marlene H. Dortch, Secretary,
FCC, WC Docket Nos. 10-90 et al. at 1-2 (filed Mar. 14, 2012) (“VoIP providers in particular are specifically
subject for the first time to interstate access charges for IP-PSTN traffic. Unlike rate of return carriers that may have
regulatory alternatives to lost revenues, the VoIP market is subject to vigorous competition and VoIP providers will
have to either raise rates, and risk losing customers, or find other ways to reduce costs to account for the increased
carrier charges.”).
103

See, e.g., Level 3 Mar. 14, 2012 Ex Parte Letter at 2-3.

104

See USF/ICC Transformation Order, 26 FCC Rcd at 17932-36, paras. 798-803 & fig. 9. This timeframe of
slightly more than two years also permits carriers to charge rates for originating intrastate toll VoIP traffic in excess
(continued....)

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37.
As with the national VoIP intercarrier compensation framework adopted in the USF/ICC
Transformation Order, the Commission here is specifying rates applicable to LECs’ origination of
intrastate toll VoIP traffic as an exercise of the same legal authority that enables the Commission to
specify transitional rates for comprehensive intercarrier compensation reform under the basic framework
of section 251(b)(5).105 In the USF/ICC Transformation Order, the Commission asserted authority to
allow transitional origination charges for toll VoIP traffic, and our action here relies on that authority.106
In the USF/ICC Transformation Order the Commission noted that “[t]he legal authority that enables us to
specify transitional rates for comprehensive intercarrier compensation reform also enables us to adopt our
transitional VoIP-PSTN intercarrier compensation framework pending the transition to bill-and-keep.”107
The Commission also noted that it “has authority to adopt …[a] transitional framework for toll VoIPPSTN traffic based on our rulemaking authority to implement section 251(b)(5),” and that “interpreting
our rulemaking authority in this manner is consistent with court decisions recognizing that ‘avoiding
market disruptions pending broader reforms is, of course, a standard and accepted justification for a
temporary rule.’”108 Our actions here likewise do not alter states’ roles or preexisting Commission
decisions regarding the treatment of VoIP more generally.109 In particular, nothing in this Order impacts
the holding of the Vonage Order.110 Other than specifying a new transitional default rate that LECs are
permitted to tariff in the context of originating intrastate toll VoIP traffic, we leave the USF/ICC
Transformation Order’s transitional national VoIP intercarrier compensation framework completely
unaltered.111
38.
We disagree with commenters who argue that the Commission has not sufficiently
justified its legal authority to permit transitional origination charges for toll VoIP traffic consistent with
sections 251(b)(5) and 251(g) of the Act.112 As the Commission explained in the USF/ICC
(...continued from previous page)
of interstate access rates for longer than the approximately eighteen months from the effective date of the USF/ICC
Transformation Order’s rules that the Commission permitted for terminating access. See id.
105

USF/ICC Transformation Order, 26 FCC Rcd at 18014-15, para. 955.

106

See USF/ICC Transformation Order, 26 FCC Rcd at 18019-20, para. 961, n. 1976.

107

See id. at 18014-15, para. 955.

108

See id.

109

USF/ICC Transformation Order, 26 FCC Rcd at 18018, para. 959 n.1969. See also id. at 17928-32, paras. 78897 (discussing the Commission’s conclusion that a uniform national framework is appropriate for intercarrier
compensation reform, with certain state roles in implementation).
110

Vonage Holdings Corporation Petition for Declaratory Ruling Concerning an Order of the Minnesota Public
Utilities Commission, WC Docket No. 03-211, Memorandum Opinion and Order, 19 FCC Rcd 22404 (2004)
(Vonage Order).
111

We note that Verizon raised concerns about the implications of our action on this petition for “the Commission’s
careful efforts in the USF-ICC Transformation Order to avoid extending the legacy intrastate access regulatory
regime to VoIP . . .” See Letter from Maggie M. McCready, Vice President, Federal Regulatory Affairs, Verizon,
to Marlene H. Dortch, Secretary, FCC, WC Docket 10-90, et al., at 1 (filed Apr. 11, 2012). As discussed below, this
order modifies a rate level but does not otherwise modify the prospective framework adopted in the USF/ICC
Transformation Order.
112

See, e.g., USTelecom Petition for Reconsideration at 39; Letter from Christi Shewman, General Attorney, AT&T
Services Inc, to Marlene H. Dortch, Secretary, FCC, WC Docket No. 10-90, et al. (filed Apr. 16, 2012) (AT&T Apr.
16, 2012 Ex Parte Letter). We note, moreover, that the Commission did not rely solely on sections 251(b)(5) and
251(g) as authority for its transitional intercarrier compensation rules, but also sections 201 and 332, as well as its
discretion to craft transitional rules designed to limit marketplace disruption. USF/ICC Transformation Order, 26
FCC Rcd at 17914-24, 17938, paras. 760-79, 809-10; supra para. 37. See also Letter from Samuel L. Feder,
Counsel for Cablevision and Charter, to Marlene H. Dortch, Secretary, FCC, WC Docket No. 10-90, et al. at 3 n.6
(filed Apr. 23, 2012) (Cablevision-Charter Apr. 23, 2012 Ex Parte Letter).

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Transformation Order, traffic previously was not subject to compensation under section 251(b)(5) if
“such traffic [was] subject to pre-1996 Act obligations regarding ‘exchange access,’” and thus
grandfathered under section 251(g).113 The Commission concluded that “[r]egardless of whether
particular VoIP services are telecommunications services or information services, there [were] pre-1996
Act obligations regarding LECs’ compensation for the provision of exchange access to an IXC or an
information service provider”—namely, either intercarrier access charges or, if subject to the ESP
exemption, special access or subscriber line charges.114 Contrary to some claims, it was not necessary for
the Commission to resolve which of those exchange access charge frameworks applied in particular
circumstances previously115—so long as they were exchange access regulations involving the exchange of
traffic between a LEC and an interexchange carrier or information service provider, they were subject to
grandfathering under section 251(g) until superseded by the Commission. Moreover, we agree with
parties arguing that “the grandfathering provision of section 251(g) does not require pre-Act
compensation regulations to be frozen in time” but allows the Commission “to ‘modify LECs’ pre-Act
‘restrictions’ or ‘obligations’ pending full implementation of relevant sections of the Act.”116 Thus, in
exercising its authority to adopt a transitional framework for VoIP intercarrier compensation, the
Commission was not restricted to adopting precisely the same charges that might have applied previously.
As commenters observe, “[t]o find otherwise would remove any ability of the Commission to adopt a
reasonable transition away from pre-Act compensation obligations.”117 Thus, regardless of whether the
ESP exemption framework historically applied to VoIP traffic, the Commission had authority to eliminate
the potential application of that framework to VoIP traffic118 and adopt transitional intercarrier
compensation rules, including origination charges for toll VoIP traffic, that seek to limit marketplace

113

USF/ICC Transformation Order, 26 FCC Rcd at 18015-17, para. 957. See also id. at 17915-16, 17923, 18017,
paras. 763, 778, 958; Cablevision-Charter Apr. 23, 2012 Ex Parte Letter at 2.
114

USF/ICC Transformation Order, 26 FCC Rcd at 18015-17, para. 957. See also Cablevision-Charter Apr. 23,
2012 Ex Parte Letter at 2. AT&T claims, without detailed analysis, that the D.C. Circuit’s WorldCom decision
precludes such an interpretation. AT&T Apr. 16, 2012 Ex Parte Letter at 2. As the Commission explained in the
USF/ICC Transformation Order, however, the WorldCom decision dealt with the exchange of traffic between two
LECs for which it was “uncontested—and the Commission declared in the Initial Order”—that there was no “preAct obligation relating to intercarrier compensation.” USF/ICC Transformation Order, 26 FCC Rcd at 18017, para.
958 (quoting WorldCom v. FCC, 288 F.3d 429, 433-34 (D.C. Cir. 2002)). See also Cablevision-Charter Apr. 23,
2012 Ex Parte Letter at 3. As the Commission observed, “[h]ere, by contrast, there is no evidence that the exchange
of toll [VoIP] traffic inherently involves the exchange of traffic between two LECs. Moreover, we note that to the
extent [VoIP] traffic is not ‘toll’ traffic, it is subject to the preexisting reciprocal compensation regime under section
251(b)(5) rather than the transitional framework for toll [VoIP] traffic that we adopt in this Order.” USF/ICC
Transformation Order, 26 FCC Rcd at 18017, para. 958.
115

See, e.g., AT&T Apr. 16, 2012 Ex Parte Letter at 2.

116

Cablevision-Charter Apr. 23, 2012 Ex Parte Letter at 2 (quoting WorldCom v. FCC, 288 F.3d 429, 433 (D.C. Cir.
2002) (citing TOPUC v. FCC, 265 F.3d 313, 324-25 (5th Cir. 2001)).
117

Cablevision-Charter Apr. 23, 2012 Ex Parte Letter at 2. Indeed, the Commission has modified its access charge
rules on a variety of occasions subsequent to the 1996 Act. See, e.g., Connect America Fund; A National
Broadband Plan for Our Future; Establishing Just and reasonable Rates for Local Exchange Carriers; High-Cost
Universal Service Support; Developing a Unified Intercarrier Compensation Regime; Federal-State Joint Board on
Universal Service; Lifeline and Link-Up; WC Docket Nos. 10-90, 07-135, 05-337, 03-109, CC Docket Nos. 01-92,
96-45, GN Docket No. 09-51, Notice of Proposed Rulemaking and Further Notice of Proposed Rulemaking, 26 FCC
Rcd 4554, 4706, para. 51 (2011) (USF/ICC Transformation NPRM) (summarizing prior reforms).
118

USF/ICC Transformation Order, 26 FCC Rcd at 18008-09, para. 945 (“we make clear that, whatever its possible
relevance historically, the ESP exemption is not relevant or applicable prospectively in determining the intercarrier
compensation obligations for [VoIP] traffic”).

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disruptions pending the ultimate transition to bill-and-keep under section 251(b)(5).119
39.
We also make clear that the new default rate for originating intrastate toll VoIP traffic
applies regardless of whether the VoIP traffic originates in TDM or IP format.120 The VoIP intercarrier
compensation rules adopted in the USF/ICC Transformation Order included a “symmetry” principle that
all VoIP traffic will be subject to the same intercarrier compensation requirements, regardless of whether
TDM or IP technology was used to originate or terminate the call. The Commission thus “decline[d] to
adopt an asymmetric approach that would apply VoIP-specific rates for only IP-originated or only IPterminated traffic.”121 Rather, the Commission “adopt[ed] rules making clear that origination and
termination charges may be imposed under our transitional [VoIP] intercarrier compensation framework,
including when an entity ‘uses Internet Protocol facilities to transmit such traffic to [or from] the called
party’s premises.’”122
40.
This “VoIP symmetry rule”123 was incorporated in the codified intercarrier compensation
rules for toll VoIP traffic. Section 51.913(a) of the Commission’s rules specifies the rate applicable to all
“Access Reciprocal Compensation subject to this subpart exchanged between a local exchange carrier and
another telecommunications carrier in Time Division Multiplexing (TDM) format that originates and/or
terminates in IP format,” without distinguishing among classes of VoIP traffic depending upon whether
they originate in TDM or IP.124 In addition, section 51.913(b) of the rules makes clear that a LEC “shall
be entitled to assess and collect the full Access Reciprocal Compensation charges prescribed by this
subpart that are set forth in a local exchange carrier’s interstate or intrastate tariff for the access services
defined in § 51.903” even if the relevant origination or termination functions are performed by the LEC’s
retail VoIP provider partner—which, of necessity, would be performing these functions in IP, rather than
TDM.125 Likewise, the rules make clear that “functions provided by a LEC as part of transmitting
telecommunications between designated points using, in whole or in part, technology other than TDM

119

See supra para. 37. See also supra paras. 33-36 (balancing policy goals, including the goal of a measured
transition, in revising the transitional VoIP intercarrier compensation rules); Cablevision-Charter Apr. 23, 2012 Ex
Parte Letter at 3-4 (discussing the “strong” policy arguments supporting transitional origination charges for the
exchange of toll VoIP traffic).
120

See, e.g., Comcast Comments (filed Feb. 9, 2012) at 8-9; NCTA Comments (filed Feb. 9, 2012) at 14-15;
Verizon Opposition (filed Feb. 9, 2012) at 8-9; Cox Reply (filed Feb. 21, 2012) at 7-8; Cablevision-Charter Mar. 12,
2012 Ex Parte Letter at 1-2; Frontier et al. Mar. 8, 2012 Ex Parte Letter at 1-2; Time Warner Cable Mar. 1, 2012 Ex
Parte Letter at 2-3.
121

USF/ICC Transformation Order, 26 FCC Rcd at 18007, para. 942. Although Cbeyond et al. cite language where
the Commission discusses the application of the symmetry rule in the context of termination, see Cbeyond et al.
Mar. 1, 2012 Ex Parte Letter at 3-4, as discussed above, that is an illustrative example and does not suggest that the
symmetry rule applies only to termination. See supra note 86 and accompanying text. See also infra paras. 39-40
(discussing the VoIP symmetry rule).
122

USF/ICC Transformation Order, 26 FCC Rcd at 18025, para. 969. See also id. at 18026-27, para. 970 (“we
adopt rules that permit a LEC to charge the relevant intercarrier compensation for functions performed by it and/or
by its retail VoIP partner, regardless of whether the functions performed or the technology used correspond
precisely to those used under a traditional TDM architecture”).
123

Connect America Fund et al., WC Docket No. 10-90 et al., Order, DA 12-298, paras. 3-5 (Wir. Comp. Bur. rel.
Feb. 27, 2012) (Second Bureau Clarification Order) (referring to the “VoIP symmetry rule” and clarifying its
application).
124

47 C.F.R. § 51.913(a).

125

47 C.F.R. § 51.913(b); USF/ICC Transformation Order, 26 FCC Rcd at 18026-27, para. 970; Second Bureau
Clarification Order at paras. 3-4. In addition, the VoIP provider partner must “not itself seek to collect Access
Reciprocal Compensation charges prescribed by this subpart for that traffic.” 47 C.F.R. § 51.913(b).

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transmission” count equally as access services for purposes of section 51.903 of the Commission’s rules
as those performed in TDM.126
41.
The Petitions focus on the factual scenario of TDM-originated VoIP traffic,127 and do not
request reconsideration of the VoIP symmetry rule nor state that interstate rates should continue to apply
to IP-originated VoIP traffic.128 Precisely because the Petitions did not ask the Commission to reconsider
the VoIP symmetry rule, however, they necessarily implicate the rate regulations for all originating
intrastate VoIP traffic, because all such traffic would have to be considered for the Petitions to be
accommodated within the framework of the VoIP symmetry rule. As commenters observe, the Petitions
would be inconsistent with the symmetrical rules adopted in the USF/ICC Transformation Order if
interpreted as implicating only TDM-originated VoIP traffic.129 Indeed, Frontier and Windstream
subsequently joined with a number of other stakeholders in advocating that the Commission act on their
Petition “by stating that all originating access charges are subject to the same treatment pending further
reform.”130 Consequently, we interpret the Petitions as implicating the rate regulations for all originating
intrastate VoIP traffic, consistent with the rules we adopt on reconsideration.131
42.
Notably, we would not grant the requests for reconsideration of our VoIP intercarrier
compensation rules if the symmetry rule were not applicable here. The Commission adopted the
symmetry requirement in the USF/ICC Transformation Order to avoid “marketplace distortions that give
one category of providers an artificial regulatory advantage in costs and revenues relative to other market
participants.”132 As commenters recognized, reconsidering the rules only for intrastate toll VoIP traffic
originated in TDM could lead to the outcome the Commission’s symmetry rule sought to avoid, for
instance by creating artificial incentives for parties to send traffic using TDM technology simply to
increase their revenues, which likewise would provide competitive advantages to such providers relative
to providers relying on IP networks.133 The symmetry rule avoids these outcomes, enabling us to grant
126

47 C.F.R. § 51.913(b). The functions must be provided “in a manner that is comparable to a service offered by a
local exchange carrier.” Id.
127

Although the Petitions refer to “PSTN-originated” VoIP calls, from the context we interpret them to mean
“TDM-originated.” See, e.g., Frontier-Windstream Petition at 27; Rural Associations Petition at 34. Under the
USF/ICC Transformation Order, “reference to ‘PSTN’ refers to the exchange of traffic between carriers in (Time
Division Multiplexing) TDM format.” USF/ICC Transformation Order, 26 FCC Rcd at 18005-06, para. 940
n.1891. Since “PSTN” refers to how traffic is exchanged, regardless of how it is originated or terminated, the phrase
“PSTN-originated” has no meaning in this context.
128

See generally Frontier-Windstream Petition at 27-28; Rural Associations Petition at 34-35. See also FrontierWindstream Reply (filed Feb. 21, 2012) at 12 n.40 (rejecting NCTA’s “assert[ion] that the Frontier and Windstream
Petition urges a different form of asymmetry, whereby a ‘carrier could assess originating access charges only at
interstate rates’ if a [VoIP] call originates in IP” stating instead that “the Petition does not adopt a position on
originating access charges for IP-originated traffic”).
129

See, e.g., Comcast Comments (filed Feb. 9, 2012) at 8-9; NCTA Comments (filed Feb. 9, 2012) at 14-15; letter
from Jennifer K. MeKee, Vice President and Associate General Counsel, National Cable and Telecommunications
Association, to Marlene H. Dortch, Secretary, FCC, WC Docket 10-90 et al. at 2-5 (filed March 30, 2012).
130

Letter from Kathleen Q. Abernathy, Chief Legal Officer and Executive Vice President, Regulatory and
Government Affairs, Frontier, et al., to Hon. Julius Genachowski, Chairman, FCC, et al. at 1 (filed Mar. 8, 2012).
131

We therefore reject Verizon’s argument that such an outcome would be inconsistent with section 405 of the Act
and section 1.429 of the Commission’s rules. See, e.g., Letter from Maggie McCready, Vice President, Federal
Regulatory Affairs, Verizon, to Marlene H. Dortch, Secretary, FCC, WC Docket No. 10-90 at 2 (filed Mar. 23,
2012).
132

USF/ICC Transformation Order, 26 FCC Rcd at 18007-08, para. 942.

133

See, e.g., Comcast Comments (filed Feb. 9, 2012) at 8-9; NCTA Comments (filed Feb. 9, 2012) at 14-15; Cox
Reply (filed Feb. 21, 2012) at 8; Letter from Matthew A. Brill, counsel for Time Warner Cable, to Marlene H.
Dortch, Secretary, FCC, WC Docket No. 10-90 et al. at 2-3 (filed Mar. 1, 2012).

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reconsideration on this issue.
III.

PROCEDURAL MATTERS
A.

Paperwork Reduction Act

43.
This Second Order on Reconsideration contains no new information collection
requirements subject to the Paperwork Reduction Act of 1995 (PRA), Public Law No. 104-13, so no
review nor approval from the Office of Management and Budget (OMB) is required.
B.

Final Regulatory Flexibility Act Certification

44.
The Regulatory Flexibility Act (RFA)134 requires that agencies prepare a regulatory
flexibility analysis for notice-and-comment rulemaking proceedings, unless the agency certifies that “the
rule will not have a significant economic impact on a substantial number of small entities.”135 The RFA
generally defines “small entity” as having the same meaning as the terms “small business,” “small
organization,” and “small governmental jurisdiction.”136 In addition, the term “small business” has the
same meaning as the term “small business concern” under the Small Business Act.137 A small business
concern is one which: (1) is independently owned and operated; (2) is not dominant in its field of
operation; and (3) satisfies any additional criteria established by the Small Business Administration
(SBA).138
45.
This Second Order on Reconsideration adopts revisions to 47 C.F.R. Parts 51 and 54. A
Final Regulatory Flexibility Analysis for the revision to Part 51 is included below as Appendix B. We
hereby certify that the revision to Part 54 will not have a significant economic impact on a substantial
number of small entities. Previously, our rules governing Phase I of the Connect America Fund required,
among other things, that carriers accepting incremental support deploy only to locations shown as
unserved on the National Broadband Map. In this Order, we revise our rules to expand the areas to which
such carriers may deploy, by permitting them to also deploy to unserved locations that are shown as
served by the carrier itself, a change we make in recognition of the fact that the Map generally shows
wireline coverage on a census-block-by-census-block basis, and thus shows an entire census block as
served by the incumbent carrier even when there may be many locations in the block that are, in fact, not
served. We conclude that this change to our rules will not have a significant impact on a substantial
number of small entities. The Commission will send a copy of this Order, including this certification, to
the Chief Counsel for Advocacy of the Small Business Administration.139 In addition, the Order (or a
summary thereof) and certification will be published in the Federal Register.140

134

See 5 U.S.C. § 601 et seq. The RFA has been amended by the Small Business Regulatory Enforcement Fairness
Act of 1996, Pub. L. No. 104-121, Title II, 110 Stat. 857.
135

5 U.S.C. § 605(b).

136

5 U.S.C. § 601(6).

137

5 U.S.C. § 601(3) (incorporating by reference the definition of “small business concern” in Small Business Act,
15 U.S.C. § 632). Pursuant to 5 U.S.C. § 601(3), the statutory definition of a small business applies “unless an
agency, after consultation with the Office of Advocacy of the Small Business Administration and after opportunity
for public comment, establishes one or more definitions of such term which are appropriate to the activities of the
agency and publishes such definition(s) in the Federal Register.”
138

Small Business Act, 15 U.S.C. § 632.

139

Id.

140

Id.

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Congressional Review Act

46.
The Commission will send a copy of this Order to Congress and the Government
Accountability Office pursuant to the Congressional Review Act.141
IV.

ORDERING CLAUSES

47.
Accordingly, IT IS ORDERED, pursuant to the authority contained in sections 1, 2, 4(i),
201-206, 214, 218-220, 251, 252, 254, 256, 303(r), 332, 403 of the Communications Act of 1934, as
amended, and section 706 of the Telecommunications Act of 1996, 47 U.S.C. §§ 151, 152, 154(i), 201206, 214, 218-220, 251, 252, 254, 256, 303(r), 332, 403, 1302, and sections 1.1 and 1.429 of the
Commission’s rules, 47 C.F.R. §§ 1.1, 1.429, that this Second Order on Reconsideration IS ADOPTED.
48.
IT IS FURTHER ORDERED that the Petition for Reconsideration of the United States
Telecom Association is DENIED to the extent provided herein.
49.
IT IS FURTHER ORDERED that the Petition for Reconsideration and/or Clarification of
Frontier Communications Corp. and Windstream Communications, Inc., is GRANTED to the extent
provided herein and DENIED to the extent provided herein.
50.
IT IS FURTHER ORDERED that the Petition for Reconsideration and Clarification of the
National Exchange Carrier Association, Inc., Organization for the Promotion and Advancement of Small
Telecommunications Companies and Western Telecommunications Alliance, is GRANTED to the extent
provided herein.
51.
IT IS FURTHER ORDERED that the Petition for Reconsideration of the Independent
Telephone & Telecommunications Alliance is GRANTED to the extent provided herein and DENIED to
the extent provided herein.
52.
IT IS FURTHER ORDERED that Part 51 of the Commission’s rules, 47 C.F.R. Part 51, is
AMENDED as set forth in Appendix A, and such rule amendments shall be effective 45 days after the
date of publication of the rule amendments in the Federal Register.
53.
IT IS FURTHER ORDERED that Part 54 of the Commission’s rules, 47 C.F.R. Part 54, is
AMENDED as set forth in Appendix A, and such rule amendments shall be effective 30 days after the
date of publication of the rule amendments in the Federal Register.

FEDERAL COMMUNICATIONS COMMISSION

Marlene H. Dortch
Secretary
141

See 5 U.S.C. 801(a)(1)(A).

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APPENDIX A
Final Rules
For the reasons discussed in the Second Order on Reconsideration, the Federal Communications
Commission amends 47 CFR parts 51 and 54 to read as follows:
PART 51-INTERCONNECTION
1. The authority citation for part 51 continues to read as follows:
Authority: Sections 1–5, 7, 201–05, 207–09, 218, 220, 225–27, 251–54, 256, 271, 303(r), and 332, of the
Communications Act of 1934, as amended, and section 706 of the Telecommunication Act of 1996, as
amended; 47 U.S.C. 151–55, 157, 201–05, 207–09, 218, 220, 225–227, 251–254, 256, 271, 303(r), 332,
1302, 47 U.S.C. 157 note, unless otherwise noted.
2. Revise § 51.913(a) to read as follows:
(a)(1) Terminating Access Reciprocal Compensation subject to this subpart exchanged between a local
exchange carrier and another telecommunications carrier in Time Division Multiplexing (TDM) format
that originates and/or terminates in IP format shall be subject to a rate equal to the relevant interstate
terminating access charges specified by this subpart. Interstate originating Access Reciprocal
Compensation subject to this subpart exchanged between a local exchange carrier and another
telecommunications carrier in Time Division Multiplexing (TDM) format that originates and/or
terminates in IP format shall be subject to a rate equal to the relevant interstate originating access charges
specified by this subpart.
(2) Until June 30, 2014, intrastate originating Access Reciprocal Compensation subject to this subpart
exchanged between a local exchange carrier and another telecommunications carrier in Time Division
Multiplexing (TDM) format that originates and/or terminates in IP format shall be subject to a rate equal
to the relevant intrastate originating access charges specified by this subpart. Effective July 1, 2014,
originating Access Reciprocal Compensation subject to this subpart exchanged between a local exchange
carrier and another telecommunications carrier in Time Division Multiplexing (TDM) format that
originates and/or terminates in IP format shall be subject to a rate equal to the relevant interstate
originating access charges specified by this subpart.
(3) Telecommunications traffic originates and/or terminates in IP format if it originates from and/or
terminates to an end-user customer of a service that requires Internet protocol-compatible customer
premises equipment.
*****

PART 54—UNIVERSAL SERVICE
1. The authority citation for part 54 continues to read as follows:
Authority: 47 U.S.C. 151, 154(i), 201, 205, 214, 219, 220, 254, 303(r), 403, and 1302 unless otherwise
noted.
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2. Amend section 54.312(b)(3) by revising it to read as follows:
*****
(b)
(1) * * *
(2) * * *
(3) A carrier may elect to accept or decline incremental support. A holding company may do so on a
holding-company basis on behalf of its operating companies that are eligible telecommunications carriers,
whose eligibility for incremental support, for these purposes, shall be considered on an aggregated basis.
A carrier must provide notice to the Commission, relevant state commissions, and any affected Tribal
government, stating the amount of incremental support it wishes to accept and identifying the areas by
wire center and census block in which the designated eligible telecommunications carrier will deploy
broadband to meet its deployment obligation, or stating that it declines incremental support. Such
notification must be made within 90 days of being notified of any incremental support for which it would
be eligible. Along with its notification, a carrier accepting incremental support must also submit a
certification that the locations to be served to satisfy the deployment obligation are not shown as served
by fixed broadband provided by any entity other than the certifying entity or its affiliate on the thencurrent version of the National Broadband Map; that, to the best of the carrier’s knowledge, the locations
are, in fact, unserved by fixed broadband; that the carrier’s current capital improvement plan did not
already include plans to complete broadband deployment within the next three years to the locations to be
counted to satisfy the deployment obligation; and that incremental support will not be used to satisfy any
merger commitment or similar regulatory obligation.
*****

24

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FCC 12-47

APPENDIX B
Final Regulatory Flexibility Analysis
1. As required by the Regulatory Flexibility Act of 1980 (RFA),1 as amended, Initial Regulatory
Flexibility Analyses (IRFAs) were incorporated in the Notice of Proposed Rule Making and Further
Notice of Proposed Rulemaking (USF/ICC Transformation NPRM), in the Notice of Inquiry and Notice of
Proposed Rulemaking (USF Reform NOI/NPRM), and in the Notice of Proposed Rulemaking (Mobility
Fund NPRM) for this proceeding.2 The Commission sought written public comment on the proposals in
the USF/ICC Transformation NPRM, including comment on the IRFA. The Commission only received
comments on the USF/ICC Transformation NPRM IRFA.3 The comments received were discussed in the
USF/ICC Transformation Order,4 and are not discussed further here. This Final Regulatory Flexibility
Analysis (FRFA) conforms to the RFA.5
A.

Need for, and Objectives of the Order

2. In the USF/ICC Transformation Order, the Commission adopted policies to transition
outdated universal service and intercarrier compensation (ICC) systems to the Connect America Fund
(CAF). In the present order, in addition to revising some rules related to universal service, which
revisions we certify will not have a significant economic impact on a substantial number of small entities,
we revise the rules adopted in the USF/ICC Transformation Order governing intercarrier compensation
for Voice over Internet Protocol (VoIP).6 In that Order, the Commission permited LECs, starting
December 29, 2011, to tariff default intercarrier compensation rates for both originating and terminating

1

5 U.S.C. § 603. The RFA, 5 U.S.C. §§ 601-612 has been amended by the Contract With America Advancement
Act of 1996, Public Law No. 104-121, 110 Stat. 847 (1996) (CWAAA). Title II of the CWAAA is the Small
Business Regulatory Enforcement Fairness Act of 1996 (SBREFA).
2

Connect America Fund; A National Broadband Plan for Our Future; Establishing Just and Reasonable Rates for
Local Exchange Carriers; High-Cost Universal Service Support; Developing an Unified Intercarrier Compensation
Regime; Federal-State Joint Board on Universal Service; Lifeline and Link-Up, WC Docket Nos. 10-90, 07-135, 05337, 03-109, GN Docket No. 09-51, CC Docket Nos. 01-92, 96-45, Notice of Proposed Rulemaking and Further
Notice of Proposed Rulemaking, 26 FCC Rcd 4554 (2011) (USF/ICC Transformation NPRM); Universal Service
Reform – Mobility Fund, WT Docket No. 10-208, Notice of Proposed Rulemaking, 25 FCC Rcd 14,716 (2010)
(“Mobility Fund NPRM”).
3

See Furchtgott-Roth Economic Enterprises USF/ICC Transformation NPRM Ex Parte Comments at 14; Bluegrass
Telephone Company USF/ICC Transformation NPRM Comments at 35-36; Letter from Brenda Crosby, President,
Cascade Utilities, Inc., to Marlene H. Dortch, Secretary, FCC, WC Docket Nos. 10-90, et al., at 3 (filed April 6,
2011); Molalla Tele§phone Company USF/ICC Transformation NPRM at 3; Letter from John Hemphill, Vice
President, Pine Telephone System, Inc., to Marlene H. Dortch, Secretary, FCC, WC Docket Nos. 10-90, et al., at 3
(filed March 30, 2011); Letter from Dave Osborn, Valley Telephone Cooperative, Inc. to Marlene H. Dortch,
Secretary, FCC, WC Docket Nos. 10-90, et al., at 3 (filed August 29, 2011).
4

See In the Matter of Connect America Fund, A National Broadband Plan for Our Future, Establishing Just and
Reasonable Rates for Local Exchange Carriers, High-Cost Universal Service Support, Developing an Unified
Intercarrier Compensation Regime, Federal-State Joint Board on Universal Service, Lifeline and Link-Up,
Universal Service Reform – Mobility Fund, WC Docket No. 10-90, GN Docket No. 09-51, WC Docket No. 07-135,
WC Docket No. 05-337, CC Docket No. 01-92, CC Docket No. 96-45, WC Docket No. 03-109, WT Docket No. 10208, Report and Order and Further Notice of Proposed Rulemaking, 26 FCC Rcd 17663 (2011) (USF/ICC
Transformation Order) ; pets. for review pending sub nom. In re: FCC, No. 11-9900 (10th Cir. filed Dec. 8, 2011).
5

See 5 U.S.C. § 604.

6

47 C.F.R § 51.913.

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FCC 12-47

toll VoIP traffic at rates equal to interstate access rates, with default intercarrier compensation for other
VoIP traffic at the otherwise-applicable reciprocal compensation rates.7
3. In this Second Order on Reconsideration, the Commission reconsidered the transitional
intercarrier compensation framework adopted in the USF/ICC Transformation Order for originating VoIP
traffic.8 Specifically, the Commission modified the VoIP ICC rules to permit LECs to tariff default
charges equal to intrastate originating access for originating intrastate toll VoIP traffic at intrastate rates
until June 30, 2014.9

A.

Summary of Significant Issues Raised by Public Comments in Response to the
IRFA

4.
No comments relating to any of the IRFAs have been filed since the Commission
released the USF/ICC Transformation Order. In making the determinations reflected in the Order, we
have considered the impact of our actions on small entities.
B.

Description and Estimate of the Number of Small Entities to which the Proposed
Rules Will Apply

5.
The RFA directs agencies to provide a description of, and where feasible, an estimate of
the number of small entities that may be affected by the proposed rules, if adopted.10 The RFA generally
defines the term “small entity” as having the same meaning as the terms “small business,” “small
organization,” and “small governmental jurisdiction.”11 In addition, the term “small business” has the
same meaning as the term “small-business concern” under the Small Business Act.12 A small-business
concern” is one which: (1) is independently owned and operated; (2) is not dominant in its field of
operation; and (3) satisfies any additional criteria established by the SBA.13
6.
Small Businesses. Nationwide, there are a total of approximately 27.5 million small
businesses, according to the SBA.14
7.
Wired Telecommunications Carriers. The SBA has developed a small business size
standard for Wired Telecommunications Carriers, which consists of all such companies having 1,500 or
fewer employees.15 According to Census Bureau data for 2007, there were 3,188 firms in this category,

7

USF/ICC Transformation Order, 26 FCC Rcd at 18002, 18008, 18011, 18017-18025, paras. 933, 944, 949 n.1919,
959, 961-67; 47 C.F.R. §§ 51.701(b)(3), 51.703(c), 51.913.
8

Order at para. 45.

9

Order at para. 47.

10

See 5 U.S.C. § 603(b)(3).

11

See 5 U.S.C. § 601(6).

12

See 5 U.S.C. § 601(3) (incorporating by reference the definition of “small-business concern” in the Small
Business Act, 15 U.S.C. § 632). Pursuant to 5 U.S.C. § 601(3), the statutory definition of a small business applies
“unless an agency, after consultation with the Office of Advocacy of the Small Business Administration and after
opportunity for public comment, establishes one or more definitions of such term which are appropriate to the
activities of the agency and publishes such definition(s) in the Federal Register.”
13

See 15 U.S.C. § 632.

14

See SBA, Office of Advocacy, “Frequently Asked Questions,” http://www.sba.gov/advo/stats/sbfaq.pdf
(accessed Dec. 2010).
15

13 C.F.R. § 121.201, NAICS code 517110.

2

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FCC 12-47

total, that operated for the entire year.16 Of this total, 3144 firms had employment of 999 or fewer
employees, and 44 firms had employment of 1000 employees or more.17 Thus, under this size standard,
the majority of firms can be considered small.
8.
Local Exchange Carriers (LECs). Neither the Commission nor the SBA has developed
a size standard for small businesses specifically applicable to local exchange services. The closest
applicable size standard under SBA rules is for Wired Telecommunications Carriers. Under that size
standard, such a business is small if it has 1,500 or fewer employees.18 According to Commission data,
1,307 carriers reported that they were incumbent local exchange service providers.19 Of these 1,307
carriers, an estimated 1,006 have 1,500 or fewer employees and 301 have more than 1,500 employees.20
Consequently, the Commission estimates that most providers of local exchange service are small entities
that may be affected by the rules and policies proposed in the Order.
9.
Incumbent Local Exchange Carriers (incumbent LECs). Neither the Commission nor
the SBA has developed a size standard for small businesses specifically applicable to incumbent local
exchange services. The closest applicable size standard under SBA rules is for Wired
Telecommunications Carriers. Under that size standard, such a business is small if it has 1,500 or fewer
employees.21 According to Commission data, 1,307 carriers reported that they were incumbent local
exchange service providers.22 Of these 1,307 carriers, an estimated 1,006 have 1,500 or fewer employees
and 301 have more than 1,500 employees.23 Consequently, the Commission estimates that most providers
of incumbent local exchange service are small businesses that may be affected by rules adopted pursuant
to the Order
10.
We have included small incumbent LECs in this present RFA analysis. As noted above,
a “small business” under the RFA is one that, inter alia, meets the pertinent small business size standard
(e.g., a telephone communications business having 1,500 or fewer employees), and “is not dominant in its
field of operation.”24 The SBA’s Office of Advocacy contends that, for RFA purposes, small incumbent
LECs are not dominant in their field of operation because any such dominance is not “national” in
scope.25 We have therefore included small incumbent LECs in this RFA analysis, although we emphasize
that this RFA action has no effect on Commission analyses and determinations in other, non-RFA
contexts.

16

U.S. Census Bureau, 2007 Economic Census, Subject Series: Information, Table 5, “Establishment and Firm
Size: Employment Size of Firms for the United States: 2007 NAICS Code 517110” (issued Nov. 2010).
17

See id.

18

13 C.F.R. § 121.201, NAICS code 517110.

19

See Trends in Telephone Service, Federal Communications Commission, Wireline Competition Bureau, Industry
Analysis and Technology Division at Table 5.3 (Sept. 2010) (Trends in Telephone Service).
20

See id.

21

See 13 C.F.R. § 121.201, NAICS code 517110.

22

See Trends in Telephone Service at Table 5.3.

23

See id.

24

5 U.S.C. § 601(3).

25

See Letter from Jere W. Glover, Chief Counsel for Advocacy, SBA, to William E. Kennard, Chairman, FCC (May
27, 1999). The Small Business Act contains a definition of “small business concern,” which the RFA incorporates
into its own definition of “small business.” See 15 U.S.C. § 632(a); see also 5 U.S.C. § 601(3). SBA regulations
interpret “small business concern” to include the concept of dominance on a national basis. See 13 C.F.R. §
121.102(b).

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FCC 12-47

11.
Competitive Local Exchange Carriers (competitive LECs), Competitive Access
Providers (CAPs), Shared-Tenant Service Providers, and Other Local Service Providers. Neither
the Commission nor the SBA has developed a small business size standard specifically for these service
providers. The appropriate size standard under SBA rules is for the category Wired Telecommunications
Carriers. Under that size standard, such a business is small if it has 1,500 or fewer employees.26
According to Commission data, 1,442 carriers reported that they were engaged in the provision of either
competitive local exchange services or competitive access provider services.27 Of these 1,442 carriers, an
estimated 1,256 have 1,500 or fewer employees and 186 have more than 1,500 employees.28 In addition,
17 carriers have reported that they are Shared-Tenant Service Providers, and all 17 are estimated to have
1,500 or fewer employees.29 In addition, 72 carriers have reported that they are Other Local Service
Providers.30 Of the 72, seventy have 1,500 or fewer employees and two have more than 1,500
employees.31 Consequently, the Commission estimates that most providers of competitive local exchange
service, competitive access providers, Shared-Tenant Service Providers, and Other Local Service
Providers are small entities that may be affected by rules adopted pursuant to the Order.
12.
Interexchange Carriers (IXCs). Neither the Commission nor the SBA has developed a
size standard for small businesses specifically applicable to interexchange services. The closest
applicable size standard under SBA rules is for Wired Telecommunications Carriers. Under that size
standard, such a business is small if it has 1,500 or fewer employees.32 According to Commission data,
359 companies reported that their primary telecommunications service activity was the provision of
interexchange services.33 Of these 359 companies, an estimated 317 have 1,500 or fewer employees and
42 have more than 1,500 employees.34 Consequently, the Commission estimates that the majority of
interexchange service providers are small entities that may be affected by rules adopted pursuant to the
Order.
13.
Prepaid Calling Card Providers. Neither the Commission nor the SBA has developed
a small business size standard specifically for prepaid calling card providers. The appropriate size
standard under SBA rules is for the category Telecommunications Resellers. Under that size standard,
such a business is small if it has 1,500 or fewer employees.35 According to Commission data, 193 carriers
have reported that they are engaged in the provision of prepaid calling cards.36 Of these, an estimated all
193 have 1,500 or fewer employees and none have more than 1,500 employees.37 Consequently, the
Commission estimates that the majority of prepaid calling card providers are small entities that may be
affected by rules adopted pursuant to the Order.
14.
Local Resellers. The SBA has developed a small business size standard for the category
of Telecommunications Resellers. Under that size standard, such a business is small if it has 1,500 or
26

See 13 C.F.R. § 121.201, NAICS code 517110.

27

See Trends in Telephone Service at Table 5.3.

28

See id.

29

See id.

30

See id.

31

See id.

32

See 13 C.F.R. § 121.201, NAICS code 517110.

33

See Trends in Telephone Service at Table 5.3.

34

See id.

35

See 13 C.F.R. § 121.201, NAICS code 517911.

36

See Trends in Telephone Service at Table 5.3.

37

See id.

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FCC 12-47

fewer employees.38 According to Commission data, 213 carriers have reported that they are engaged in
the provision of local resale services.39 Of these, an estimated 211 have 1,500 or fewer employees and
two have more than 1,500 employees.40 Consequently, the Commission estimates that the majority of
local resellers are small entities that may be affected by rules adopted pursuant to the Order.
15.
Toll Resellers. The SBA has developed a small business size standard for the category
of Telecommunications Resellers. Under that size standard, such a business is small if it has 1,500 or
fewer employees.41 According to Commission data, 881 carriers have reported that they are engaged in
the provision of toll resale services.42 Of these, an estimated 857 have 1,500 or fewer employees and 24
have more than 1,500 employees.43 Consequently, the Commission estimates that the majority of toll
resellers are small entities that may be affected by rules adopted pursuant to the Order.
16.
Other Toll Carriers. Neither the Commission nor the SBA has developed a size
standard for small businesses specifically applicable to Other Toll Carriers. This category includes toll
carriers that do not fall within the categories of interexchange carriers, operator service providers, prepaid
calling card providers, satellite service carriers, or toll resellers. The closest applicable size standard
under SBA rules is for Wired Telecommunications Carriers. Under that size standard, such a business is
small if it has 1,500 or fewer employees.44 According to Commission data, 284 companies reported that
their primary telecommunications service activity was the provision of other toll carriage.45 Of these, an
estimated 279 have 1,500 or fewer employees and five have more than 1,500 employees.46 Consequently,
the Commission estimates that most Other Toll Carriers are small entities that may be affected by the
rules and policies adopted pursuant to the Order.
17.
800 and 800-Like Service Subscribers.47 Neither the Commission nor the SBA has
developed a small business size standard specifically for 800 and 800-like service (toll free) subscribers.
The appropriate size standard under SBA rules is for the category Telecommunications Resellers. Under
that size standard, such a business is small if it has 1,500 or fewer employees.48 The most reliable source
of information regarding the number of these service subscribers appears to be data the Commission
collects on the 800, 888, 877, and 866 numbers in use.49 According to our data, as of September 2009,
the number of 800 numbers assigned was 7,860,000; the number of 888 numbers assigned was 5,588,687;
the number of 877 numbers assigned was 4,721,866; and the number of 866 numbers assigned was
7,867,736.50 We do not have data specifying the number of these subscribers that are not independently
owned and operated or have more than 1,500 employees, and thus are unable at this time to estimate with
greater precision the number of toll free subscribers that would qualify as small businesses under the SBA
38

See 13 C.F.R. § 121.201, NAICS code 517911.

39

See Trends in Telephone Service at Table 5.3.

40

See id.

41

See 13 C.F.R. § 121.201, NAICS code 517911.

42

See Trends in Telephone Service at Table 5.3.

43

See id.

44

See 13 C.F.R. § 121.201, NAICS code 517110.

45

See Trends in Telephone Service at Table 5.3.

46

See id.

47

We include all toll-free number subscribers in this category, including those for 888 numbers.

48

See 13 C.F.R. § 121.201, NAICS code 517911.

49

See Trends in Telephone Service at Tables 18.7-18.10.

50

See id.

5

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FCC 12-47

size standard. Consequently, we estimate that there are 7,860,000 or fewer small entity 800 subscribers;
5,588,687 or fewer small entity 888 subscribers; 4,721,866 or fewer small entity 877 subscribers; and
7,867,736 or fewer small entity 866 subscribers.
18.
Wireless Telecommunications Carriers (except Satellite). Since 2007, the SBA has
recognized wireless firms within this new, broad, economic census category.51 Prior to that time, such
firms were within the now-superseded categories of Paging and Cellular and Other Wireless
Telecommunications.52 Under the present and prior categories, the SBA has deemed a wireless business
to be small if it has 1,500 or fewer employees.53 For this category, census data for 2007 show that there
were 1,383 firms that operated for the entire year.54 Of this total, 1,368 firms had employment of 999 or
fewer employees and 15 had employment of 1000 employees or more.55 Similarly, according to
Commission data, 413 carriers reported that they were engaged in the provision of wireless telephony,
including cellular service, Personal Communications Service (PCS), and Specialized Mobile Radio
(SMR) Telephony services.56 Of these, an estimated 261 have 1,500 or fewer employees and 152 have
more than 1,500 employees.57 Consequently, the Commission estimates that approximately half or more
of these firms can be considered small. Thus, using available data, we estimate that the majority of
wireless firms can be considered small.
19.
Broadband Personal Communications Service. The broadband personal
communications service (PCS) spectrum is divided into six frequency blocks designated A through F,
and the Commission has held auctions for each block. The Commission defined “small entity” for
Blocks C and F as an entity that has average gross revenues of $40 million or less in the three previous
calendar years.58 For Block F, an additional classification for “very small business” was added and is
defined as an entity that, together with its affiliates, has average gross revenues of not more than $15
million for the preceding three calendar years.59 These standards defining “small entity” in the context
of broadband PCS auctions have been approved by the SBA.60 No small businesses, within the SBAapproved small business size standards bid successfully for licenses in Blocks A and B. There were 90
winning bidders that qualified as small entities in the Block C auctions. A total of 93 small and very
51

See 13 C.F.R. § 121.201, NAICS code 517210.

52

U.S. Census Bureau, 2002 NAICS Definitions, “517211 Paging”;
http://www.census.gov/epcd/naics02/def/NDEF517.HTM; U.S. Census Bureau, 2002 NAICS Definitions, “517212
Cellular and Other Wireless Telecommunications”; http://www.census.gov/epcd/naics02/def/NDEF517.HTM.
53

13 C.F.R. § 121.201, NAICS code 517210. The now-superseded, pre-2007 C.F.R. citations were 13 C.F.R. §
121.201, NAICS codes 517211 and 517212 (referring to the 2002 NAICS).
54

U.S. Census Bureau, Subject Series: Information, Table 5, “Establishment and Firm Size: Employment Size of
Firms for the United States: 2007 NAICS Code 517210” (issued Nov. 2010).
55

Id. Available census data do not provide a more precise estimate of the number of firms that have employment of
1,500 or fewer employees; the largest category provided is for firms with “100 employees or more.”
56

See Trends in Telephone Service at Table 5.3.

57

See id.

58

See generally Amendment of Parts 20 and 24 of the Commission’s Rules – Broadband PCS Competitive Bidding
and the Commercial Mobile Radio Service Spectrum Cap, WT Docket No. 96-59, GN Docket No. 90-314, Report
and Order, 11 FCC Rcd 7824 (1996); see also 47 C.F.R. § 24.720(b)(1).
59

See generally Amendment of Parts 20 and 24 of the Commission’s Rules – Broadband PCS Competitive Bidding
and the Commercial Mobile Radio Service Spectrum Cap, WT Docket No. 96-59, GN Docket No. 90-314, Report
and Order, 11 FCC Rcd 7824 (1996); see also 47 C.F.R. § 24.720(b)(2).
60

See, e.g., Implementation of Section 309(j) of the Communications Act – Competitive Bidding, PP Docket No. 93253, Fifth Report and Order, 9 FCC Rcd 5532 (1994).

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small business bidders won approximately 40 percent of the 1,479 licenses for Blocks D, E, and F.61 In
1999, the Commission re-auctioned 347 C, E, and F Block licenses.62 There were 48 small business
winning bidders. In 2001, the Commission completed the auction of 422 C and F Broadband PCS
licenses in Auction 35.63 Of the 35 winning bidders in this auction, 29 qualified as “small” or “very
small” businesses. Subsequent events, concerning Auction 35, including judicial and agency
determinations, resulted in a total of 163 C and F Block licenses being available for grant. In 2005, the
Commission completed an auction of 188 C block licenses and 21 F block licenses in Auction 58. There
were 24 winning bidders for 217 licenses.64 Of the 24 winning bidders, 16 claimed small business status
and won 156 licenses. In 2007, the Commission completed an auction of 33 licenses in the A, C, and F
Blocks in Auction 71.65 Of the 14 winning bidders, six were designated entities.66 In 2008, the
Commission completed an auction of 20 Broadband PCS licenses in the C, D, E and F block licenses in
Auction 78.67
20.
Advanced Wireless Services. In 2008, the Commission conducted the auction of
Advanced Wireless Services (“AWS”) licenses.68 This auction, which as designated as Auction 78,
offered 35 licenses in the AWS 1710-1755 MHz and 2110-2155 MHz bands (“AWS-1”). The AWS-1
licenses were licenses for which there were no winning bids in Auction 66. That same year, the
Commission completed Auction 78. A bidder with attributed average annual gross revenues that
exceeded $15 million and did not exceed $40 million for the preceding three years (“small business”)
received a 15 percent discount on its winning bid. A bidder with attributed average annual gross
revenues that did not exceed $15 million for the preceding three years (“very small business”) received a
25 percent discount on its winning bid. A bidder that had combined total assets of less than $500 million
and combined gross revenues of less than $125 million in each of the last two years qualified for
entrepreneur status.69 Four winning bidders that identified themselves as very small businesses won 17
licenses.70 Three of the winning bidders that identified themselves as a small business won five licenses.
Additionally, one other winning bidder that qualified for entrepreneur status won 2 licenses.

61

See FCC News, Broadband PCS, D, E and F Block Auction Closes, No. 71744 (rel. Jan. 14, 1997). See also
Amendment of the Commission’s Rules Regarding Installment Payment Financing for Personal Communications
Services (PCS) Licensees, WT Docket No. 97-82, Second Report and Order and Further Notice of Proposed
Rulemaking, 12 FCC Rcd 16436 (1997).
62

See “C, D, E, and F Block Broadband PCS Auction Closes” Public Notice, 14 FCC Rcd 6688 (WTB 1999).

63

See “C and F Block Broadband PCS Auction Closes; Winning Bidders Announced,” Public Notice, 16 FCC Rcd
2339 (2001).
64

See “Broadband PCS Spectrum Auction Closes; Winning Bidders Announced for Auction No. 58,” Public Notice,
20 FCC Rcd 3703 (2005).
65

See “Auction of Broadband PCS Spectrum Licenses Closes; Winning Bidders Announced for Auction No. 71,”
Public Notice, 22 FCC Rcd 9247 (2007).
66

Id.

67

See “Auction of AWS-1 and Broadband PCS Licenses Rescheduled For August 13, 3008, Notice of Filing
Requirements, Minimum Opening Bids, Upfront Payments and Other Procedures For Auction 78,” Public Notice,
23 FCC Rcd 7496 (2008) (AWS-1 and Broadband PCS Procedures Public Notice).
68

See AWS-1 and Broadband PCS Procedures Public Notice, 23 FCC Rcd 7496. Auction 78 also included an
auction of Broadband PCS licenses.
69

Id. at 7521-22.

70

See “Auction of AWS-1 and Broadband PCS Licenses Closes, Winning Bidders Announced for Auction 78,
Down Payments Due September 9, 2008, FCC Forms 601 and 602 Due September 9, 2008, Final Payments Due
September 23, 2008, Ten-Day Petition to Deny Period,” Public Notice, 23 FCC Rcd 12749 (2008).

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21.
Narrowband Personal Communications Services. In 1994, the Commission conducted
an auction for Narrowband PCS licenses. A second auction was also conducted later in 1994. For
purposes of the first two Narrowband PCS auctions, “small businesses” were entities with average gross
revenues for the prior three calendar years of $40 million or less.71 Through these auctions, the
Commission awarded a total of 41 licenses, 11 of which were obtained by four small businesses.72 To
ensure meaningful participation by small business entities in future auctions, the Commission adopted a
two-tiered small business size standard in the Narrowband PCS Second Report and Order.73 A “small
business” is an entity that, together with affiliates and controlling interests, has average gross revenues
for the three preceding years of not more than $40 million.74 A “very small business” is an entity that,
together with affiliates and controlling interests, has average gross revenues for the three preceding years
of not more than $15 million.75 The SBA has approved these small business size standards.76 A third
auction was conducted in 2001. Here, five bidders won 317 (Metropolitan Trading Areas and
nationwide) licenses.77 Three of these claimed status as a small or very small entity and won 311
licenses.
22.
Paging (Private and Common Carrier). In the Paging Third Report and Order, we
developed a small business size standard for “small businesses” and “very small businesses” for purposes
of determining their eligibility for special provisions such as bidding credits and installment payments.78
A “small business” is an entity that, together with its affiliates and controlling principals, has average
gross revenues not exceeding $15 million for the preceding three years. Additionally, a “very small
business” is an entity that, together with its affiliates and controlling principals, has average gross
revenues that are not more than $3 million for the preceding three years. The SBA has approved these
small business size standards.79 According to Commission data, 291 carriers have reported that they are
engaged in Paging or Messaging Service.80 Of these, an estimated 289 have 1,500 or fewer employees,
and two have more than 1,500 employees.81 Consequently, the Commission estimates that the majority of
paging providers are small entities that may be affected by our action. An auction of Metropolitan
71

Implementation of Section 309(j) of the Communications Act – Competitive Bidding Narrowband PCS, PP Docket
No. 93-253, GEN Docket No. 90-314, ET Docket No. 92-100, Third Memorandum Opinion and Order and Further
Notice of Proposed Rulemaking, 10 FCC Rcd 175, 196, para. 46 (1994).
72

See Announcing the High Bidders in the Auction of Ten Nationwide Narrowband PCS Licenses, Winning Bids
Total $617,006,674, Public Notice, PNWL 94-004 (rel. Aug. 2, 1994); Announcing the High Bidders in the Auction
of 30 Regional Narrowband PCS Licenses; Winning Bids Total $490,901,787, Public Notice, PNWL 94-27 (rel.
Nov. 9, 1994).
73

Amendment of the Commission’s Rules to Establish New Personal Communications Services, GEN Docket No.
90-314, ET Docket No. 92-100, PP Docket No. 93-253, Narrowband PCS, Second Report and Order and Second
Further Notice of Proposed Rule Making, 15 FCC Rcd 10456, 10476, para. 40 (2000) (Narrowband PCS Second
Report and Order).
74

Narrowband PCS Second Report and Order, 15 FCC Rcd at 10476, para. 40.

75

Id.

76

See Letter to Amy Zoslov, Chief, Auctions and Industry Analysis Division, Wireless Telecommunications
Bureau, FCC, from A. Alvarez, Administrator, SBA (Dec. 2, 1998) (Alvarez Letter 1998).
77

See “Narrowband PCS Auction Closes,” Public Notice, 16 FCC Rcd 18663 (WTB 2001).

78

See Revision of Part 22 and Part 90 of the Commission’s Rules to Facilitate Future Development of Paging
Systems, WT Docket No. 96-18, PR Docket No. 93-253, Memorandum Opinion and Order on Reconsideration and
Third Report and Order, 14 FCC Rcd 10030, 10085–88, paras. 98–107 (1999) (Paging Third Report and Order)
79

See Alvarez Letter 1998.

80

See Trends in Telephone Service at Table 5.3.

81

See id.

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Economic Area licenses commenced on February 24, 2000, and closed on March 2, 2000. Of the 2,499
licenses auctioned, 985 were sold. Fifty-seven companies claiming small business status won 440
licenses.82 A subsequent auction of MEA and Economic Area (“EA”) licenses was held in the year 2001.
Of the 15,514 licenses auctioned, 5,323 were sold.83 One hundred thirty-two companies claiming small
business status purchased 3,724 licenses. A third auction, consisting of 8,874 licenses in each of 175 EAs
and 1,328 licenses in all but three of the 51 MEAs, was held in 2003. Seventy-seven bidders claiming
small or very small business status won 2,093 licenses.84 A fourth auction, consisting of 9,603 lower and
upper paging band licenses was held in the year 2010. Twenty-nine bidders claiming small or very small
business status won 3,016 licenses.85.
23.
220 MHz Radio Service – Phase I Licensees. The 220 MHz service has both Phase I
and Phase II licenses. Phase I licensing was conducted by lotteries in 1992 and 1993. There are
approximately 1,515 such non-nationwide licensees and four nationwide licensees currently authorized to
operate in the 220 MHz band. The Commission has not developed a small business size standard for
small entities specifically applicable to such incumbent 220 MHz Phase I licensees. To estimate the
number of such licensees that are small businesses, we apply the small business size standard under the
SBA rules applicable to Wireless Telecommunications Carriers (except Satellite). Under this category,
the SBA deems a wireless business to be small if it has 1,500 or fewer employees.86 The Commission
estimates that nearly all such licensees are small businesses under the SBA’s small business size standard
that may be affected by rules adopted pursuant to the Order.
24.
220 MHz Radio Service – Phase II Licensees. The 220 MHz service has both Phase I
and Phase II licenses. The Phase II 220 MHz service is subject to spectrum auctions. In the 220 MHz
Third Report and Order, we adopted a small business size standard for “small” and “very small”
businesses for purposes of determining their eligibility for special provisions such as bidding credits and
installment payments.87 This small business size standard indicates that a “small business” is an entity
that, together with its affiliates and controlling principals, has average gross revenues not exceeding $15
million for the preceding three years.88 A “very small business” is an entity that, together with its
affiliates and controlling principals, has average gross revenues that do not exceed $3 million for the
preceding three years.89 The SBA has approved these small business size standards.90 Auctions of Phase

82

See id.

83

See “Lower and Upper Paging Band Auction Closes,” Public Notice, 16 FCC Rcd 21821 (WTB 2002).

84

See “Lower and Upper Paging Bands Auction Closes,” Public Notice, 18 FCC Rcd 11154 (WTB 2003). The
current number of small or very small business entities that hold wireless licenses may differ significantly from the
number of such entities that won in spectrum auctions due to assignments and transfers of licenses in the secondary
market over time. In addition, some of the same small business entities may have won licenses in more than one
auction.
85

See “Auction of Lower and Upper Paging Bands Licenses Closes,” Public Notice, 25 FCC Rcd 18,164 (WTB
2010).
86

See 13 C.F.R. § 121.201, NAICS code 517210.

87

See Amendment of Part 90 of the Commission’s Rules to Provide for the Use of the 220-222 MHz Band by the
Private Land Mobile Radio Service, PR Docket No. 89-552, GN Docket No. 93-252, PP Docket No. 93-253, Third
Report and Order and Fifth Notice of Proposed Rulemaking, 12 FCC Rcd 10943, 11068–70, paras. 291–295 (1997)
(220 MHz Third Report and Order).
88

See id. at 11068–69, para. 291.

89

See id. at 11068–70, paras. 291–95.

90

See Letter to D. Phythyon, Chief, Wireless Telecommunications Bureau, FCC, from Aida Alvarez, Administrator,
SBA (Jan. 6, 1998) (Alvarez to Phythyon Letter 1998).

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II licenses commenced on September 15, 1998, and closed on October 22, 1998.91 In the first auction,
908 licenses were auctioned in three different-sized geographic areas: three nationwide licenses, 30
Regional Economic Area Group (EAG) Licenses, and 875 Economic Area (EA) Licenses. Of the 908
licenses auctioned, 693 were sold. Thirty-nine small businesses won licenses in the first 220 MHz
auction. The second auction included 225 licenses: 216 EA licenses and 9 EAG licenses. Fourteen
companies claiming small business status won 158 licenses.92
25.
Specialized Mobile Radio. The Commission awards small business bidding credits in
auctions for Specialized Mobile Radio (“SMR”) geographic area licenses in the 800 MHz and 900 MHz
bands to entities that had revenues of no more than $15 million in each of the three previous calendar
years.93 The Commission awards very small business bidding credits to entities that had revenues of no
more than $3 million in each of the three previous calendar years.94 The SBA has approved these small
business size standards for the 800 MHz and 900 MHz SMR Services.95 The Commission has held
auctions for geographic area licenses in the 800 MHz and 900 MHz bands. The 900 MHz SMR auction
was completed in 1996.96 Sixty bidders claiming that they qualified as small businesses under the $15
million size standard won 263 geographic area licenses in the 900 MHz SMR band.97 The 800 MHz
SMR auction for the upper 200 channels was conducted in 1997. Ten bidders claiming that they qualified
as small businesses under the $15 million size standard won 38 geographic area licenses for the upper 200
channels in the 800 MHz SMR band.98 A second auction for the 800 MHz band was conducted in 2002
and included 23 BEA licenses. One bidder claiming small business status won five licenses.99
26.
The auction of the 1,053 800 MHz SMR geographic area licenses for the General
Category channels was conducted in 2000. Eleven bidders won 108 geographic area licenses for the
General Category channels in the 800 MHz SMR band qualified as small businesses under the $15
million size standard.100 In an auction completed in 2000, a total of 2,800 Economic Area licenses in the
lower 80 channels of the 800 MHz SMR service were awarded.101 Of the 22 winning bidders, 19 claimed
small business status and won 129 licenses. Thus, combining all three auctions, 40 winning bidders for
geographic licenses in the 800 MHz SMR band claimed status as small business.
27.
In addition, there are numerous incumbent site-by-site SMR licensees and licensees with
extended implementation authorizations in the 800 and 900 MHz bands. We do not know how many
firms provide 800 MHz or 900 MHz geographic area SMR pursuant to extended implementation
91

See “Phase II 220 MHz Service Auction Closes,” Public Notice, 14 FCC Rcd 605 (1998).

92

See “Phase II 220 MHz Service Spectrum Auction Closes,” Public Notice, 14 FCC Rcd 11218 (1999).

93

47 C.F.R. §§ 90.810, 90.814(b), 90.912.

94

47 C.F.R. §§ 90.810, 90.814(b), 90.912.

95

See Letter from Aida Alvarez, Administrator, SBA, to Thomas Sugrue, Chief, Wireless Telecommunications
Bureau, FCC (Aug. 10, 1999) (Alvarez Letter 1999).
96

“FCC Announces Winning Bidders in the Auction of 1,020 Licenses to Provide 900 MHz SMR in Major Trading
Areas: Down Payments due April 22, 1996, FCC Form 600s due April 29, 1996,” Public Notice, 11 FCC Rcd 18599
(WTB 1996).
97

Id.

98

See “Correction to Public Notice DA 96-586 ‘FCC Announces Winning Bidders in the Auction of 1020 Licenses
to Provide 900 MHz SMR in Major Trading Areas,’” Public Notice, 11 FCC Rcd 18,637 (WTB 1996).
99

See Multi-Radio Service Auction Closes, Public Notice, 17 FCC Rcd 1446 (WTB 2002).

100

See “800 MHz Specialized Mobile Radio (SMR) Service General Category (851-854 MHz) and Upper Band
(861-865 MHz) Auction Closes; Winning Bidders Announced,” Public Notice, 15 FCC Rcd 17162 (WTB 2000).
101

See “800 MHz SMR Service Lower 80 Channels Auction Closes; Winning Bidders Announced,” Public Notice,
16 FCC Rcd 1736 (WTB 2000).

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authorizations, nor how many of these providers have annual revenues of no more than $15 million. One
firm has over $15 million in revenues. In addition, we do not know how many of these firms have 1,500
or fewer employees.102 We assume, for purposes of this analysis, that all of the remaining existing
extended implementation authorizations are held by small entities, as that small business size standard is
approved by the SBA.
28.
Broadband Radio Service and Educational Broadband Service. Broadband Radio
Service systems, previously referred to as Multipoint Distribution Service (“MDS”) and Multichannel
Multipoint Distribution Service (“MMDS”) systems, and “wireless cable,” transmit video programming
to subscribers and provide two-way high speed data operations using the microwave frequencies of the
Broadband Radio Service (“BRS”) and Educational Broadband Service (“EBS”) (previously referred to as
the Instructional Television Fixed Service (“ITFS”)).103 In connection with the 1996 BRS auction, the
Commission established a small business size standard as an entity that had annual average gross
revenues of no more than $40 million in the previous three calendar years.104 The BRS auctions resulted
in 67 successful bidders obtaining licensing opportunities for 493 Basic Trading Areas (“BTAs”). Of the
67 auction winners, 61 met the definition of a small business. BRS also includes licensees of stations
authorized prior to the auction. At this time, we estimate that of the 61 small business BRS auction
winners, 48 remain small business licensees. In addition to the 48 small businesses that hold BTA
authorizations, there are approximately 392 incumbent BRS licensees that are considered small entities.105
After adding the number of small business auction licensees to the number of incumbent licensees not
already counted, we find that there are currently approximately 440 BRS licensees that are defined as
small businesses under either the SBA or the Commission’s rules. The Commission has adopted three
levels of bidding credits for BRS: (i) a bidder with attributed average annual gross revenues that exceed
$15 million and do not exceed $40 million for the preceding three years (small business) is eligible to
receive a 15 percent discount on its winning bid; (ii) a bidder with attributed average annual gross
revenues that exceed $3 million and do not exceed $15 million for the preceding three years (very small
business) is eligible to receive a 25 percent discount on its winning bid; and (iii) a bidder with attributed
average annual gross revenues that do not exceed $3 million for the preceding three years (entrepreneur)
is eligible to receive a 35 percent discount on its winning bid.106 In 2009, the Commission conducted
Auction 86, which offered 78 BRS licenses.107 Auction 86 concluded with ten bidders winning 61
licenses.108 Of the ten, two bidders claimed small business status and won 4 licenses; one bidder claimed
very small business status and won three licenses; and two bidders claimed entrepreneur status and won
six licenses.
102

See generally 13 C.F.R. § 121.201, NAICS code 517210.

103

Amendment of Parts 21 and 74 of the Commission’s Rules with Regard to Filing Procedures in the Multipoint
Distribution Service and in the Instructional Television Fixed Service and Implementation of Section 309(j) of the
Communications Act – Competitive Bidding, MM Docket No. 94-131 and PP Docket No. 93-253, Report and Order,
10 FCC Rcd 9589, 9593 para. 7 (1995).
104

47 C.F.R. § 21.961(b)(1).

105

47 U.S.C. § 309(j). Hundreds of stations were licensed to incumbent MDS licensees prior to implementation of
Section 309(j) of the Communications Act of 1934, 47 U.S.C. § 309(j). For these pre-auction licenses, the
applicable standard is SBA’s small business size standard.
106

47 C.F.R. § 27.1218. See also “Auction of Broadband Radio Service (BRS) Licenses, Scheduled for October 27,
2009, Notice and Filing Requirements, Minimum Opening Bids, Upfront Payments, and Other Procedures for
Auction 86,” Public Notice, 24 FCC Rcd 8277, 8296 (WTB 2009) (Auction 86 Procedures Public Notice).
107

Auction 86 Procedures Public Notice, 24 FCC Rcd at 8280.

108

“Auction of Broadband Radio Service Licenses Closes, Winning Bidders Announced for Auction 86, Down
Payments Due November 23, 2009, Final Payments Due December 8, 2009, Ten-Day Petition to Deny Period,”
Public Notice, 24 FCC Rcd 13572 (WTB 2009).

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29.
In addition, the SBA’s Cable Television Distribution Services small business size
standard is applicable to EBS. There are presently 2,032 EBS licensees. All but 100 of these licenses are
held by educational institutions. Educational institutions are included in this analysis as small entities.109
Thus, we estimate that at least 1,932 licensees are small businesses. Since 2007, Cable Television
Distribution Services have been defined within the broad economic census category of Wired
Telecommunications Carriers; that category is defined as follows: “This industry comprises
establishments primarily engaged in operating and/or providing access to transmission facilities and
infrastructure that they own and/or lease for the transmission of voice, data, text, sound, and video using
wired telecommunications networks. Transmission facilities may be based on a single technology or a
combination of technologies.”110 The SBA defines a small business size standard for this category as any
such firms having 1,500 or fewer employees. The SBA has developed a small business size standard for
this category, which is: all such firms having 1,500 or fewer employees. According to Census Bureau
data for 2007, there were a total of 955 firms in this previous category that operated for the entire year.111
Of this total, 939 firms had employment of 999 or fewer employees, and 16 firms had employment of
1000 employees or more.112 Thus, under this size standard, the majority of firms can be considered small
and may be affected by rules adopted pursuant to the Order.
30.
Lower 700 MHz Band Licenses. The Commission previously adopted criteria for
defining three groups of small businesses for purposes of determining their eligibility for special
provisions such as bidding credits.113 The Commission defined a “small business” as an entity that,
together with its affiliates and controlling principals, has average gross revenues not exceeding $40
million for the preceding three years.114 A “very small business” is defined as an entity that, together with
its affiliates and controlling principals, has average gross revenues that are not more than $15 million for
the preceding three years.115 Additionally, the Lower 700 MHz Band had a third category of small
business status for Metropolitan/Rural Service Area (“MSA/RSA”) licenses, identified as “entrepreneur”
and defined as an entity that, together with its affiliates and controlling principals, has average gross
revenues that are not more than $3 million for the preceding three years.116 The SBA approved these
small size standards.117 The Commission conducted an auction in 2002 of 740 Lower 700 MHz Band
licenses (one license in each of the 734 MSAs/RSAs and one license in each of the six Economic Area
Groupings (EAGs)). Of the 740 licenses available for auction, 484 licenses were sold to 102 winning
bidders.118 Seventy-two of the winning bidders claimed small business, very small business or
entrepreneur status and won a total of 329 licenses.119 The Commission conducted a second Lower 700
109

The term “small entity” within SBREFA applies to small organizations (nonprofits) and to small governmental
jurisdictions (cities, counties, towns, townships, villages, school districts, and special districts with populations of
less than 50,000). 5 U.S.C. §§ 601(4)-(6). We do not collect annual revenue data on EBS licensees.
110

U.S. Census Bureau, 2007 NAICS Definitions, “517110 Wired Telecommunications Carriers” (partial
definition); http://www.census.gov/naics/2007/def/ND517110.HTM#N517110.
111

U.S. Census Bureau, 2007 Economic Census, Subject Series: Information, Table 5, Employment Size of Firms
for the United States: 2007, NAICS code 5171102 (issued Nov. 2010).
112

See id.

113

See Reallocation and Service Rules for the 698-746 MHz Spectrum Band (Television Channels 52-59), GN
Docket No. 01-74, Report and Order, 17 FCC Rcd 1022 (2002) (Channels 52-59 Report and Order).
114

See Channels 52-59 Report and Order, 17 FCC Rcd at 1087-88 para. 172.

115

See id.

116

See id. at 1088 para. 173.

117

See Alvarez Letter 1999.

118

See “Lower 700 MHz Band Auction Closes,” Public Notice, 17 FCC Rcd 17272 (WTB 2002).

119

Id.

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MHz Band auction in 2003 that included 256 licenses: 5 EAG licenses and 476 Cellular Market Area
licenses.120 Seventeen winning bidders claimed small or very small business status and won 60 licenses,
and nine winning bidders claimed entrepreneur status and won 154 licenses.121 In 2005, the Commission
completed an auction of 5 licenses in the Lower 700 MHz Band, designated Auction 60. There were
three winning bidders for five licenses. All three winning bidders claimed small business status.122
31.
In 2007, the Commission reexamined its rules governing the 700 MHz band in the 700
MHz Second Report and Order. 123 The 700 MHz Second Report and Order revised the band plan for the
commercial (including Guard Band) and public safety spectrum, adopted services rules, including
stringent build-out requirements, an open platform requirement on the C Block, and a requirement on the
D Block licensee to construct and operate a nationwide, interoperable wireless broadband network for
public safety users.124 An auction of A, B and E block licenses in the Lower 700 MHz band was held in
2008.125 Twenty winning bidders claimed small business status (those with attributable average annual
gross revenues that exceed $15 million and do not exceed $40 million for the preceding three years).
Thirty three winning bidders claimed very small business status (those with attributable average annual
gross revenues that do not exceed $15 million for the preceding three years). In 2011, the Commission
conducted Auction 92, which offered 16 Lower 700 MHz band licenses that had been made available in
Auction 73 but either remained unsold or were licenses on which a winning bidder defaulted. Two of the
seven winning bidders in Auction 92 claimed very small business status, winning a total of four
licenses.126
32.
Upper 700 MHz Band Licenses. In the 700 MHz Second Report and Order, the
Commission revised its rules regarding Upper 700 MHz band licenses.127 In 2008, the Commission
conducted Auction 73 in which C and D block licenses in the Upper 700 MHz band were available.128
Three winning bidders claimed very small business status (those with attributable average annual gross
revenues that do not exceed $15 million for the preceding three years).

120

See “Lower 700 MHz Band Auction Closes,” Public Notice, 18 FCC Rcd 11873 (WTB 2003).

121

See id.

122

“Auction of Lower 700 MHz Band Licenses Closes, Winning Bidders Announced for Auction No. 60, Down
Payments due August 19, 2005, FCC Forms 601 and 602 due August 19, 2005, Final Payment due September 2,
2005, Ten-Day Petition to Deny Period,” Public Notice, 20 FCC Rcd 13424 (WTB 2005).
123

See Service Rules for the 698-746, 747-762 and 777-792 MHz Band, WT Docket No. 06-150, Revision of the
Commission’s Rules to Ensure Compatibility with Enhanced 911 Emergency Calling Systems, CC Docket No. 94102, Section 68.4(a) of the Commission’s Rules Governing Hearing Aid-Compatible Telephone, Biennial Regulatory
Review – Amendment of Parts 1, 22, 24, 27, and 90 to Streamline and Harmonize Various Rules Affecting Wireless
Radio Services, Former Nextel Communications, Inc. Upper700 MHz Guard Band Licenses and Revisions to Part
27 of the Commission’s Rules, Implementing a Nationwide, Broadband Interoperable Public Safety Network in the
700 MHz Band, Development of Operational, Technical and Spectrum Requirements for Meeting Federal, State,
and Local Public Safety Communications Requirements Through the Year 2010, WT Docket Nos. 96-86, 01-309,
03-264, 06-169, PS Docket No. 06-229, Second Report and Order, 22 FCC Rcd 15289 (2007) (700 MHz Second
Report and Order).
124

Id.

125

See Auction of 700 MHz Band Licenses Closes, Public Notice, 23 FCC Rcd 4572 (WTB 2008).

126

See “Auction of 700 MHz Band Licenses Closes, Winning Bidders Announced for Auction 92, Down Payments
and FCC Forms 601 and 602 Due August 11, 2011, Final Payments Due August 25, 2011, Ten-Day Petition to Deny
Period,” Public Notice, 26 FCC Rcd 10,494 (WTB 2011).
127

700 MHz Second Report and Order, 22 FCC Rcd 15,289.

128

See Auction of 700 MHz Band Licenses Closes, Public Notice, 23 FCC Rcd 4572 (2008).

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33.
700 MHz Guard Band Licensees. In the 700 MHz Guard Band Order, we adopted a
small business size standard for “small businesses” and “very small businesses” for purposes of
determining their eligibility for special provisions such as bidding credits and installment payments.129 A
“small business” is an entity that, together with its affiliates and controlling principals, has average gross
revenues not exceeding $40 million for the preceding three years.130 Additionally, a “very small
business” is an entity that, together with its affiliates and controlling principals, has average gross
revenues that are not more than $15 million for the preceding three years.131 An auction of 52 Major
Economic Area (MEA) licenses commenced on September 6, 2000, and closed on September 21, 2000.132
Of the 104 licenses auctioned, 96 licenses were sold to nine bidders. Five of these bidders were small
businesses that won a total of 26 licenses. A second auction of 700 MHz Guard Band licenses
commenced on February 13, 2001 and closed on February 21, 2001. All eight of the licenses auctioned
were sold to three bidders. One of these bidders was a small business that won a total of two licenses.133
34.
Cellular Radiotelephone Service. Auction 77 was held to resolve one group of
mutually exclusive applications for Cellular Radiotelephone Service licenses for unserved areas in New
Mexico.134 Bidding credits for designated entities were not available in Auction 77.135 In 2008, the
Commission completed the closed auction of one unserved service area in the Cellular Radiotelephone
Service, designated as Auction 77. Auction 77 concluded with one provisionally winning bid for the
unserved area totaling $25,002.136
35.
Private Land Mobile Radio (“PLMR”). PLMR systems serve an essential role in a
range of industrial, business, land transportation, and public safety activities. These radios are used by
companies of all sizes operating in all U.S. business categories, and are often used in support of the
licensee’s primary (non-telecommunications) business operations. For the purpose of determining
whether a licensee of a PLMR system is a small business as defined by the SBA, we use the broad census
category, Wireless Telecommunications Carriers (except Satellite). This definition provides that a small
entity is any such entity employing no more than 1,500 persons.137 The Commission does not require
PLMR licensees to disclose information about number of employees, so the Commission does not have
information that could be used to determine how many PLMR licensees constitute small entities under
this definition. We note that PLMR licensees generally use the licensed facilities in support of other
business activities, and therefore, it would also be helpful to assess PLMR licensees under the standards
applied to the particular industry subsector to which the licensee belongs.138
36.
As of March 2010, there were 424,162 PLMR licensees operating 921,909 transmitters in
the PLMR bands below 512 MHz. We note that any entity engaged in a commercial activity is eligible to
129

See Service Rules for the 746-764 and 776-794 MHz Bands, and Revisions to Part 27 of the Commission’s Rules,
WT Docket No. 99-168, Second Report and Order, 15 FCC Rcd 5299 (2000) (700 MHz Guard Band Order).
130

See id. at 5343–45 paras. 106–10.

131

See id.

132

See “700 MHz Guard Band Auction Closes,” Public Notice, 15 FCC Rcd 18026 (2000).

133

See “700 MHz Guard Band Auction Closes,” Public Notice, 16 FCC Rcd 4590 (2001).

134

See “Closed Auction of Licenses for Cellular Unserved Service Area Scheduled for June 17, 2008, Notice and
Filing Requirements, Minimum Opening Bids, Upfront Payments, and Other Procedures for Auction 77,” Public
Notice, 23 FCC Rcd 6670 (WTB 2008).
135

Id. at 6685.

136

See Auction of Cellular Unserved Service Area License Closes, Winning Bidder Announced for Auction 77, Down
Payment due July 2, 2008, Final Payment due July 17, 2008, Public Notice, 23 FCC Rcd 9501 (WTB 2008).
137

See 13 C.F.R. § 121.201, NAICS code 517210.

138

See generally 13 C.F.R. § 121.201.

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hold a PLMR license, and that any revised rules in this context could therefore potentially impact small
entities covering a great variety of industries.
37.
Rural Radiotelephone Service. The Commission has not adopted a size standard for
small businesses specific to the Rural Radiotelephone Service.139 A significant subset of the Rural
Radiotelephone Service is the Basic Exchange Telephone Radio System (“BETRS”).140 In the present
context, we will use the SBA’s small business size standard applicable to Wireless Telecommunications
Carriers (except Satellite), i.e., an entity employing no more than 1,500 persons.141 There are
approximately 1,000 licensees in the Rural Radiotelephone Service, and the Commission estimates that
there are 1,000 or fewer small entity licensees in the Rural Radiotelephone Service that may be affected
by the rules and policies proposed herein.
38.
Air-Ground Radiotelephone Service. The Commission has not adopted a small
business size standard specific to the Air-Ground Radiotelephone Service.142 We will use SBA’s small
business size standard applicable to Wireless Telecommunications Carriers (except Satellite), i.e., an
entity employing no more than 1,500 persons.143 There are approximately 100 licensees in the AirGround Radiotelephone Service, and we estimate that almost all of them qualify as small under the SBA
small business size standard and may be affected by rules adopted pursuant to the Order.
39.
Aviation and Marine Radio Services. Small businesses in the aviation and marine
radio services use a very high frequency (VHF) marine or aircraft radio and, as appropriate, an emergency
position-indicating radio beacon (and/or radar) or an emergency locator transmitter. The Commission has
not developed a small business size standard specifically applicable to these small businesses. For
purposes of this analysis, the Commission uses the SBA small business size standard for the category
Wireless Telecommunications Carriers (except Satellite), which is 1,500 or fewer employees.144 Census
data for 2007, which supersede data contained in the 2002 Census, show that there were 1,383 firms that
operated that year.145 Of those 1,383, 1,368 had fewer than 100 employees, and 15 firms had more than
100 employees. Most applicants for recreational licenses are individuals. Approximately 581,000 ship
station licensees and 131,000 aircraft station licensees operate domestically and are not subject to the
radio carriage requirements of any statute or treaty. For purposes of our evaluations in this analysis, we
estimate that there are up to approximately 712,000 licensees that are small businesses (or individuals)
under the SBA standard. In addition, between December 3, 1998 and December 14, 1998, the
Commission held an auction of 42 VHF Public Coast licenses in the 157.1875-157.4500 MHz (ship
transmit) and 161.775-162.0125 MHz (coast transmit) bands. For purposes of the auction, the
Commission defined a “small” business as an entity that, together with controlling interests and affiliates,
has average gross revenues for the preceding three years not to exceed $15 million dollars.146 In addition,
a “very small” business is one that, together with controlling interests and affiliates, has average gross
139

The service is defined in 47 C.F.R. § 22.99.

140

BETRS is defined in 47 C.F.R. §§ 22.757 and 22.759.

141

13 C.F.R. § 121.201, NAICS code 517210.

142

See 47 C.F.R. § 22.99.

143

See 13 C.F.R. § 121.201, NAICS code 517210.

144

See 13 C.F.R. § 121.201, NAICS code 517210.

145

U.S. Census Bureau, 2007 Economic Census, Sector 51, 2007 NAICS code 517210 (rel. Oct. 20, 2009),
http://factfinder.census.gov/servlet/IBQTable?_bm=y&-geo_id=&-fds_name=EC0700A1&-_skip=700&ds_name=EC0751SSSZ5&-_lang=en.
146

See generally Amendment of the Commission’s Rules Concerning Maritime Communications, PR Docket No. 92257, Third Report and Order and Memorandum Opinion and Order, 13 FCC Rcd 19853, 19884–88 paras. 64–73
(1998).

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revenues for the preceding three years not to exceed $3 million dollars.147 There are approximately
10,672 licensees in the Marine Coast Service, and the Commission estimates that almost all of them
qualify as “small” businesses under the above special small business size standards and may be affected
by rules adopted pursuant to the Order.
40.
Fixed Microwave Services. Fixed microwave services include common carrier,148
private operational-fixed,149 and broadcast auxiliary radio services.150 At present, there are approximately
22,015 common carrier fixed licensees and 61,670 private operational-fixed licensees and broadcast
auxiliary radio licensees in the microwave services. The Commission has not created a size standard for a
small business specifically with respect to fixed microwave services. For purposes of this analysis, the
Commission uses the SBA small business size standard for Wireless Telecommunications Carriers
(except Satellite), which is 1,500 or fewer employees.151 The Commission does not have data specifying
the number of these licensees that have more than 1,500 employees, and thus is unable at this time to
estimate with greater precision the number of fixed microwave service licensees that would qualify as
small business concerns under the SBA’s small business size standard. Consequently, the Commission
estimates that there are up to 22,015 common carrier fixed licensees and up to 61,670 private operationalfixed licensees and broadcast auxiliary radio licensees in the microwave services that may be small and
may be affected by the rules and policies adopted herein. We note, however, that the common carrier
microwave fixed licensee category includes some large entities.
41.
Offshore Radiotelephone Service. This service operates on several UHF television
broadcast channels that are not used for television broadcasting in the coastal areas of states bordering the
Gulf of Mexico.152 There are presently approximately 55 licensees in this service. The Commission is
unable to estimate at this time the number of licensees that would qualify as small under the SBA’s small
business size standard for the category of Wireless Telecommunications Carriers (except Satellite). Under
that SBA small business size standard, a business is small if it has 1,500 or fewer employees.153 Census
data for 2007, which supersede data contained in the 2002 Census, show that there were 1,383 firms that
operated that year.154 Of those 1,383, 1,368 had fewer than 100 employees, and 15 firms had more than
100 employees. Thus, under this category and the associated small business size standard, the majority of
firms can be considered small.

147

See id.

148

See 47 C.F.R. §§ 101 et seq. (formerly, Part 21 of the Commission’s Rules) for common carrier fixed microwave
services (except Multipoint Distribution Service).
149

Persons eligible under parts 80 and 90 of the Commission’s Rules can use Private Operational-Fixed Microwave
services. See 47 C.F.R. Parts 80 and 90. Stations in this service are called operational-fixed to distinguish them
from common carrier and public fixed stations. Only the licensee may use the operational-fixed station, and only for
communications related to the licensee’s commercial, industrial, or safety operations.
150

Auxiliary Microwave Service is governed by Part 74 of Title 47 of the Commission’s Rules. See 47 C.F.R. Part
74. This service is available to licensees of broadcast stations and to broadcast and cable network entities.
Broadcast auxiliary microwave stations are used for relaying broadcast television signals from the studio to the
transmitter, or between two points such as a main studio and an auxiliary studio. The service also includes mobile
television pickups, which relay signals from a remote location back to the studio.
151

See 13 C.F.R. § 121.201, NAICS code 517210.

152

This service is governed by Subpart I of Part 22 of the Commission’s Rules. See 47 C.F.R. §§ 22.1001-22.1037.

153

Id.

154

U.S. Census Bureau, 2007 Economic Census, Sector 51, 2007 NAICS code 517210 (rel. Oct. 20, 2009),
http://factfinder.census.gov/servlet/IBQTable?_bm=y&-geo_id=&-fds_name=EC0700A1&-_skip=700&ds_name=EC0751SSSZ5&-_lang=en.

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42.
39 GHz Service. The Commission created a special small business size standard for 39
GHz licenses – an entity that has average gross revenues of $40 million or less in the three previous
calendar years.155 An additional size standard for “very small business” is: an entity that, together with
affiliates, has average gross revenues of not more than $15 million for the preceding three calendar
years.156 The SBA has approved these small business size standards.157 The auction of the 2,173 39 GHz
licenses began on April 12, 2000 and closed on May 8, 2000. The 18 bidders who claimed small business
status won 849 licenses. Consequently, the Commission estimates that 18 or fewer 39 GHz licensees are
small entities that may be affected by rules adopted pursuant to the Order.
43.
Local Multipoint Distribution Service. Local Multipoint Distribution Service
(“LMDS”) is a fixed broadband point-to-multipoint microwave service that provides for two-way video
telecommunications.158 The auction of the 986 LMDS licenses began and closed in 1998. The
Commission established a small business size standard for LMDS licenses as an entity that has average
gross revenues of less than $40 million in the three previous calendar years.159 An additional small
business size standard for “very small business” was added as an entity that, together with its affiliates,
has average gross revenues of not more than $15 million for the preceding three calendar years.160 The
SBA has approved these small business size standards in the context of LMDS auctions.161 There were
93 winning bidders that qualified as small entities in the LMDS auctions. A total of 93 small and very
small business bidders won approximately 277 A Block licenses and 387 B Block licenses. In 1999, the
Commission re-auctioned 161 licenses; there were 32 small and very small businesses winning that won
119 licenses.
44.
218-219 MHz Service. The first auction of 218-219 MHz spectrum resulted in 170
entities winning licenses for 594 Metropolitan Statistical Area (MSA) licenses. Of the 594 licenses, 557
were won by entities qualifying as a small business. For that auction, the small business size standard
was an entity that, together with its affiliates, has no more than a $6 million net worth and, after federal
income taxes (excluding any carry over losses), has no more than $2 million in annual profits each year
for the previous two years.162 In the 218-219 MHz Report and Order and Memorandum Opinion and
Order, we established a small business size standard for a “small business” as an entity that, together with
its affiliates and persons or entities that hold interests in such an entity and their affiliates, has average
annual gross revenues not to exceed $15 million for the preceding three years.163 A “very small business”
155

See Amendment of the Commission’s Rules Regarding the 37.0-38.6 GHz and 38.6-40.0 GHz Bands, ET Docket
No. 95-183, PP Docket No. 93-253, Report and Order, 12 FCC Rcd 18600, 18661–64, paras. 149–151 (1997).
156

See id.

157

See Letter to Kathleen O’Brien Ham, Chief, Auctions and Industry Analysis Division, Wireless
Telecommunications Bureau, FCC, from Aida Alvarez, Administrator, SBA (Feb. 4, 1998).
158

See Rulemaking to Amend Parts 1, 2, 21, 25, of the Commission’s Rules to Redesignate the 27.5-29.5 GHz
Frequency Band, Reallocate the 29.5-30.5 Frequency Band, to Establish Rules and Policies for Local Multipoint
Distribution Service and for Fixed Satellite Services, CC Docket No. 92-297, Second Report and Order, Order on
Reconsideration, and Fifth Notice of Proposed Rule Making, 12 FCC Rcd 12545, 12689-90, para. 348 (1997)
(“LMDS Second Report and Order”).
159

See LMDS Second Report and Order, 12 FCC Rcd at 12689-90, para. 348.

160

See id.

161

See Alvarez to Phythyon Letter 1998.

162

See generally Implementation of Section 309(j) of the Communications Act – Competitive Bidding, PP Docket
No. 93-253, Fourth Report and Order, 9 FCC Rcd 2330 (1994).
163

See generally Amendment of Part 95 of the Commission’s Rules to Provide Regulatory Flexibility in the 218-219
MHz Service, WT Docket No. 98-169, Report and Order and Memorandum Opinion and Order, 15 FCC Rcd 1497
(1999).

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is defined as an entity that, together with its affiliates and persons or entities that hold interests in such an
entity and its affiliates, has average annual gross revenues not to exceed $3 million for the preceding three
years.164 These size standards will be used in future auctions of 218-219 MHz spectrum.
45.
2.3 GHz Wireless Communications Services. This service can be used for fixed,
mobile, radiolocation, and digital audio broadcasting satellite uses. The Commission defined “small
business” for the wireless communications services (“WCS”) auction as an entity with average gross
revenues of $40 million for each of the three preceding years, and a “very small business” as an entity
with average gross revenues of $15 million for each of the three preceding years.165 The SBA has
approved these definitions.166 The Commission auctioned geographic area licenses in the WCS service.
In the auction, which was conducted in 1997, there were seven bidders that won 31 licenses that qualified
as very small business entities, and one bidder that won one license that qualified as a small business
entity.
46.
1670-1675 MHz Band. An auction for one license in the 1670-1675 MHz band was
conducted in 2003. The Commission defined a “small business” as an entity with attributable average
annual gross revenues of not more than $40 million for the preceding three years and thus would be
eligible for a 15 percent discount on its winning bid for the 1670-1675 MHz band license. Further, the
Commission defined a “very small business” as an entity with attributable average annual gross revenues
of not more than $15 million for the preceding three years and thus would be eligible to receive a 25
percent discount on its winning bid for the 1670-1675 MHz band license. One license was awarded. The
winning bidder was not a small entity.
47.
3650–3700 MHz band. In March 2005, the Commission released a Report and Order
and Memorandum Opinion and Order that provides for nationwide, non-exclusive licensing of terrestrial
operations, utilizing contention-based technologies, in the 3650 MHz band (i.e., 3650–3700 MHz).167 As
of April 2010, more than 1270 licenses have been granted and more than 7433 sites have been registered.
The Commission has not developed a definition of small entities applicable to 3650–3700 MHz band
nationwide, non-exclusive licensees. However, we estimate that the majority of these licensees are
Internet Access Service Providers (ISPs) and that most of those licensees are small businesses.
48.
24 GHz – Incumbent Licensees. This analysis may affect incumbent licensees who
were relocated to the 24 GHz band from the 18 GHz band, and applicants who wish to provide services in
the 24 GHz band. For this service, the Commission uses the SBA small business size standard for the
category “Wireless Telecommunications Carriers (except satellite),” which is 1,500 or fewer
employees.168 To gauge small business prevalence for these cable services we must, however, use the
most current census data. Census data for 2007, which supersede data contained in the 2002 Census,
show that there were 1,383 firms that operated that year.169 Of those 1,383, 1,368 had fewer than 100
employees, and 15 firms had more than 100 employees. Thus under this category and the associated
small business size standard, the majority of firms can be considered small. The Commission notes that
the Census’ use of the classifications “firms” does not track the number of “licenses”. The Commission
164

See id.

165

Amendment of the Commission’s Rules to Establish Part 27, the Wireless Communications Service (WCS), GN
Docket No. 96-228, Report and Order, 12 FCC Rcd 10785, 10879 para. 194 (1997).
166

See Letter from Aida Alvarez, Administrator, SBA, to Amy Zoslov, Chief, Auctions and Industry Analysis
Division, Wireless Telecommunications Bureau, FCC (Dec. 2, 1998) (Alvarez Letter 1998).
167

The service is defined in section 90.1301 et seq. of the Commission’s Rules, 47 C.F.R. § 90.1301 et seq.

168

13 C.F.R. § 121.201, NAICS code 517210.

169

U.S. Census Bureau, 2007 Economic Census, Sector 51, 2007 NAICS code 517210 (rel. Oct. 20, 2009),
http://factfinder.census.gov/servlet/IBQTable?_bm=y&-geo_id=&-fds_name=EC0700A1&-_skip=700&ds_name=EC0751SSSZ5&-_lang=en.

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believes that there are only two licensees in the 24 GHz band that were relocated from the 18 GHz band,
Teligent170 and TRW, Inc. It is our understanding that Teligent and its related companies have less than
1,500 employees, though this may change in the future. TRW is not a small entity. Thus, only one
incumbent licensee in the 24 GHz band is a small business entity.
49.
24 GHz – Future Licensees. With respect to new applicants in the 24 GHz band, the
size standard for “small business” is an entity that, together with controlling interests and affiliates, has
average annual gross revenues for the three preceding years not in excess of $15 million.171 “Very small
business” in the 24 GHz band is an entity that, together with controlling interests and affiliates, has
average gross revenues not exceeding $3 million for the preceding three years.172 The SBA has approved
these small business size standards.173 These size standards will apply to a future 24 GHz license auction,
if held.
50.
Satellite Telecommunications. Since 2007, the SBA has recognized satellite firms
within this revised category, with a small business size standard of $15 million.174 The most current
Census Bureau data are from the economic census of 2007, and we will use those figures to gauge the
prevalence of small businesses in this category. Those size standards are for the two census categories of
“Satellite Telecommunications” and “Other Telecommunications.” Under the “Satellite
Telecommunications” category, a business is considered small if it had $15 million or less in average
annual receipts.175 Under the “Other Telecommunications” category, a business is considered small if it
had $25 million or less in average annual receipts.176
51.
The first category of Satellite Telecommunications “comprises establishments primarily
engaged in providing point-to-point telecommunications services to other establishments in the
telecommunications and broadcasting industries by forwarding and receiving communications signals via
a system of satellites or reselling satellite telecommunications.”177 For this category, Census Bureau data
for 2007 show that there were a total of 512 firms that operated for the entire year.178 Of this total, 464
firms had annual receipts of under $10 million, and 18 firms had receipts of $10 million to
$24,999,999.179 Consequently, we estimate that the majority of Satellite Telecommunications firms are
small entities that might be affected by rules adopted pursuant to the Order.
52.
The second category of Other Telecommunications “primarily engaged in providing
specialized telecommunications services, such as satellite tracking, communications telemetry, and radar
170

Teligent acquired the DEMS licenses of FirstMark, the only licensee other than TRW in the 24 GHz band whose
license has been modified to require relocation to the 24 GHz band.
171

See Amendments to Parts 1, 2, 87 and 101 of the Commission’s Rules to License Fixed Services at 24 GHz, WT
Docket No. 99-327, Report and Order, 15 FCC Rcd 16934, 16967 para. 77 (2000); see also 47 C.F.R. §
101.538(a)(2).
172

See Amendments to Parts 1, 2, 87 and 101 of the Commission’s Rules to License Fixed Services at 24 GHz, WT
Docket No. 99-327, Report and Order, 15 FCC Rcd 16934, 16967 para. 77 (2000); see also 47 C.F.R. §
101.538(a)(1).
173

See Letter to Margaret W. Wiener, Deputy Chief, Auctions and Industry Analysis Division, Wireless
Telecommunications Bureau, FCC, from Gary M. Jackson, Assistant Administrator, SBA (July 28, 2000).
174

See 13 C.F.R. § 121.201, NAICS code 517410.

175

Id.

176

See 13 C.F.R. § 121.201, NAICS code 517919.

177

U.S. Census Bureau, 2007 NAICS Definitions, “517410 Satellite Telecommunications”.

178

See 13 C.F.R. § 121.201, NAICS code 517410.

179

See id. An additional 38 firms had annual receipts of $25 million or more.

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station operation. This industry also includes establishments primarily engaged in providing satellite
terminal stations and associated facilities connected with one or more terrestrial systems and capable of
transmitting telecommunications to, and receiving telecommunications from, satellite systems.
Establishments providing Internet services or voice over Internet protocol (VoIP) services via clientsupplied telecommunications connections are also included in this industry.”180 For this category, Census
Bureau data for 2007 show that there were a total of 2,383 firms that operated for the entire year.181 Of
this total, 2,346 firms had annual receipts of under $25 million.182 Consequently, we estimate that the
majority of Other Telecommunications firms are small entities that might be affected by our action.
53.
Cable and Other Program Distribution. Since 2007, these services have been defined
within the broad economic census category of Wired Telecommunications Carriers; that category is
defined as follows: “This industry comprises establishments primarily engaged in operating and/or
providing access to transmission facilities and infrastructure that they own and/or lease for the
transmission of voice, data, text, sound, and video using wired telecommunications networks.
Transmission facilities may be based on a single technology or a combination of technologies.”183 The
SBA has developed a small business size standard for this category, which is: all such firms having 1,500
or fewer employees.184 According to Census Bureau data for 2007, there were a total of 955 firms in this
previous category that operated for the entire year.185 Of this total, 939 firms had employment of 999 or
fewer employees, and 16 firms had employment of 1000 employees or more.186 Thus, under this size
standard, the majority of firms can be considered small and may be affected by rules adopted pursuant to
the Order.
54.
Cable Companies and Systems. The Commission has developed its own small business
size standards, for the purpose of cable rate regulation. Under the Commission’s rules, a “small cable
company” is one serving 400,000 or fewer subscribers, nationwide.187 Industry data indicate that, of
1,076 cable operators nationwide, all but eleven are small under this size standard.188 In addition, under
the Commission’s rules, a “small system” is a cable system serving 15,000 or fewer subscribers.189
Industry data indicate that, of 7,208 systems nationwide, 6,139 systems have under 10,000 subscribers,

180

U.S. Census Bureau, 2007 NAICS Definitions, “517919 Other Telecommunications”,
http://www.census.gov/naics/2007/def/ND517919.HTM.
181

See 13 C.F.R. § 121.201, NAICS code 517919.

182

U.S. Census Bureau, 2007 Economic Census, Subject Series: Information, Table 5, “Establishment and Firm
Size: Employment Size of Firms for the United States: 2007 NAICS Code 517919” (issued Nov. 2010).
183

U.S. Census Bureau, 2007 NAICS Definitions, “517110 Wired Telecommunications Carriers” (partial
definition), http://www.census.gov/naics/2007/def/ND517110.HTM#N517110.
184

13 C.F.R. § 121.201, NAICS code 517110.

185

U.S. Census Bureau, 2007 Economic Census, Subject Series: Information, Table 5, Employment Size of Firms
for the United States: 2007, NAICS code 5171102 (issued Nov. 2010).
186

See id.

187

See 47 C.F.R. § 76.901(e). The Commission determined that this size standard equates approximately to a size
standard of $100 million or less in annual revenues. See Implementation of Sections of the 1992 Cable Television
Consumer Protection and Competition Act: Rate Regulation, MM Docket Nos. 92-266, 93-215, Sixth Report and
Order and Eleventh Order on Reconsideration, 10 FCC Rcd 7393, 7408 para. 28 (1995).
188

These data are derived from R.R. BOWKER, BROADCASTING & CABLE YEARBOOK 2006, “Top 25 Cable/Satellite
Operators,” pages A-8 & C-2 (data current as of June 30, 2005); WARREN COMMUNICATIONS NEWS, TELEVISION &
CABLE FACTBOOK 2006, “Ownership of Cable Systems in the United States,” pages D-1805 to D-1857.
189

See 47 C.F.R. § 76.901(c).

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and an additional 379 systems have 10,000-19,999 subscribers.190 Thus, under this second size standard,
most cable systems are small and may be affected by rules adopted pursuant to the Order.
55.
Cable System Operators. The Act also contains a size standard for small cable system
operators, which is “a cable operator that, directly or through an affiliate, serves in the aggregate fewer
than 1 percent of all subscribers in the United States and is not affiliated with any entity or entities whose
gross annual revenues in the aggregate exceed $250,000,000.”191 The Commission has determined that an
operator serving fewer than 677,000 subscribers shall be deemed a small operator, if its annual revenues,
when combined with the total annual revenues of all its affiliates, do not exceed $250 million in the
aggregate.192 Industry data indicate that, of 1,076 cable operators nationwide, all but ten are small under
this size standard.193 We note that the Commission neither requests nor collects information on whether
cable system operators are affiliated with entities whose gross annual revenues exceed $250 million,194
and therefore we are unable to estimate more accurately the number of cable system operators that would
qualify as small under this size standard.
56.
Open Video Services. The open video system (“OVS”) framework was established in
1996, and is one of four statutorily recognized options for the provision of video programming services
by local exchange carriers.195 The OVS framework provides opportunities for the distribution of video
programming other than through cable systems. Because OVS operators provide subscription
services,196 OVS falls within the SBA small business size standard covering cable services, which is
“Wired Telecommunications Carriers.”197 The SBA has developed a small business size standard for
this category, which is: all such firms having 1,500 or fewer employees. According to Census Bureau
data for 2007, there were a total of 955 firms in this previous category that operated for the entire year.198
Of this total, 939 firms had employment of 999 or fewer employees, and 16 firms had employment of
1000 employees or more.199 Thus, under this second size standard, most cable systems are small and
may be affected by rules adopted pursuant to the Order. In addition, we note that the Commission has
certified some OVS operators, with some now providing service.200 Broadband service providers
190

WARREN COMMUNICATIONS NEWS, TELEVISION & CABLE FACTBOOK 2006, “U.S. Cable Systems by Subscriber
Size,” page F-2 (data current as of Oct. 2005). The data do not include 718 systems for which classifying data were
not available.
191

47 U.S.C. § 543(m)(2); see also 47 C.F.R. § 76.901(f) & nn.1–3.

192

47 C.F.R. § 76.901(f); see FCC Announces New Subscriber Count for the Definition of Small Cable Operator,
Public Notice, 16 FCC Rcd 2225 (Cable Services Bureau 2001).
193

These data are derived from R.R. BOWKER, BROADCASTING & CABLE YEARBOOK 2006, “Top 25 Cable/Satellite
Operators,” pages A-8 & C-2 (data current as of June 30, 2005); WARREN COMMUNICATIONS NEWS, TELEVISION &
CABLE FACTBOOK 2006, “Ownership of Cable Systems in the United States,” pages D-1805 to D-1857.
194

The Commission does receive such information on a case-by-case basis if a cable operator appeals a local
franchise authority’s finding that the operator does not qualify as a small cable operator pursuant to § 76.901(f) of
the Commission’s rules.
195

47 U.S.C. § 571(a)(3)-(4). See Annual Assessment of the Status of Competition in the Market for the Delivery of
Video Programming, MB Docket No. 06-189, Thirteenth Annual Report, 24 FCC Rcd 542, 606 para. 135 (2009)
(“Thirteenth Annual Cable Competition Report”).
196

See 47 U.S.C. § 573.

197

U.S. Census Bureau, 2007 NAICS Definitions, “517110 Wired Telecommunications Carriers”;
http://www.census.gov/naics/2007/def/ND517110.HTM#N517110.
198

U.S. Census Bureau, 2007 Economic Census, Subject Series: Information, Table 5, Employment Size of Firms
for the United States: 2007, NAICS code 5171102 (issued Nov. 2010).
199

See id.

200

A list of OVS certifications may be found at http://www.fcc.gov/mb/ovs/csovscer.html.

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(“BSPs”) are currently the only significant holders of OVS certifications or local OVS franchises.201 The
Commission does not have financial or employment information regarding the entities authorized to
provide OVS, some of which may not yet be operational. Thus, again, at least some of the OVS
operators may qualify as small entities.
57.
Internet Service Providers. Since 2007, these services have been defined within the
broad economic census category of Wired Telecommunications Carriers; that category is defined as
follows: “This industry comprises establishments primarily engaged in operating and/or providing access
to transmission facilities and infrastructure that they own and/or lease for the transmission of voice, data,
text, sound, and video using wired telecommunications networks. Transmission facilities may be based
on a single technology or a combination of technologies.”202 The SBA has developed a small business
size standard for this category, which is: all such firms having 1,500 or fewer employees.203 According
to Census Bureau data for 2007, there were 3,188 firms in this category, total, that operated for the entire
year.204 Of this total, 3144 firms had employment of 999 or fewer employees, and 44 firms had
employment of 1000 employees or more.205 Thus, under this size standard, the majority of firms can be
considered small. In addition, according to Census Bureau data for 2007, there were a total of 396 firms
in the category Internet Service Providers (broadband) that operated for the entire year.206 Of this total,
394 firms had employment of 999 or fewer employees, and two firms had employment of 1000
employees or more.207 Consequently, we estimate that the majority of these firms are small entities that
may be affected by rules adopted pursuant to the Order.
58.
Internet Publishing and Broadcasting and Web Search Portals. Our action may
pertain to interconnected VoIP services, which could be provided by entities that provide other services
such as email, online gaming, web browsing, video conferencing, instant messaging, and other, similar
IP-enabled services. The Commission has not adopted a size standard for entities that create or provide
these types of services or applications. However, the Census Bureau has identified firms that “primarily
engaged in 1) publishing and/or broadcasting content on the Internet exclusively or 2) operating Web
sites that use a search engine to generate and maintain extensive databases of Internet addresses and
content in an easily searchable format (and known as Web search portals).”208 The SBA has developed a
small business size standard for this category, which is: all such firms having 500 or fewer
employees.209 According to Census Bureau data for 2007, there were 2,705 firms in this category that
operated for the entire year.210 Of this total, 2,682 firms had employment of 499 or fewer employees, and
201

See Thirteenth Annual Cable Competition Report, 24 FCC Rcd at 606-07 para. 135. BSPs are newer firms that
are building state-of-the-art, facilities-based networks to provide video, voice, and data services over a single
network.
202

U.S. Census Bureau, 2007 NAICS Definitions, “517110 Wired Telecommunications Carriers” (partial
definition), http://www.census.gov/naics/2007/def/ND517110.HTM#N517110.
203

13 C.F.R. § 121.201, NAICS code 517110.

204

U.S. Census Bureau, 2007 Economic Census, Subject Series: Information, Table 5, “Establishment and Firm
Size: Employment Size of Firms for the United States: 2007 NAICS Code 517110” (issued Nov. 2010).
205

See id.

206

U.S. Census Bureau, 2007 Economic Census, Subject Series: Information, Table 5, Employment Size of Firms
for the United States: 2007, NAICS code 5171103 (issued Nov. 2010).
207

See id.

208

U.S. Census Bureau, “2007 NAICS Definitions: 519130 Internet Publishing and Broadcasting and Web Search
Portals,” http://www.naics.com/censusfiles/ND519130.HTM.
209

See 13 C.F.R. § 121.201, NAICS code 519130.

210

U.S. Census Bureau, 2007 Economic Census, Subject Series: Information, Table 5, “Establishment and Firm
Size: Employment Size of Firms for the United States: 2007 NAICS Code 519130” (issued Nov. 2010).

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23 firms had employment of 500 employees or more.211 Consequently, we estimate that the majority of
these firms are small entities that may be affected by rules adopted pursuant to the Order.
59.
Data Processing, Hosting, and Related Services. Entities in this category “primarily …
provid[e] infrastructure for hosting or data processing services.”212 The SBA has developed a small
business size standard for this category; that size standard is $25 million or less in average annual
receipts.213 According to Census Bureau data for 2007, there were 8,060 firms in this category that
operated for the entire year.214 Of these, 7,744 had annual receipts of under $ $24,999,999.215
Consequently, we estimate that the majority of these firms are small entities that may be affected by rules
adopted pursuant to the Order. .
60.
All Other Information Services. The Census Bureau defines this industry as including
“establishments primarily engaged in providing other information services (except news syndicates,
libraries, archives, Internet publishing and broadcasting, and Web search portals).”216 Our action pertains
to interconnected VoIP services, which could be provided by entities that provide other services such as
email, online gaming, web browsing, video conferencing, instant messaging, and other, similar IP-enabled
services. The SBA has developed a small business size standard for this category; that size standard is
$7.0 million or less in average annual receipts.217 According to Census Bureau data for 2007, there were
367 firms in this category that operated for the entire year.218 Of these, 334 had annual receipts of under
$5.0 million, and an additional 11 firms had receipts of between $5 million and $9,999,999.
Consequently, we estimate that the majority of these firms are small entities that may be affected by our
action.
C.

Description of Projected Reporting, Recordkeeping, and Other Compliance
Requirements

61.
Under the revised VoIP pricing rules we adopt, carriers may tariff default intercarrier
compensation charges for intrastate originating toll VoIP-PSTN traffic in the absence of an agreement for
different intercarrier compensation. Service providers may need to revise their interstate and intrastate
tariffs to account for these changes.
D.

Steps Taken to Minimize Significant Economic Impact on Small Entities, and
Significant Alternatives Considered

62.
The RFA requires an agency to describe any significant alternatives that it has considered
in reaching its approach, which may include the following four alternatives, among others: (1) the
establishment of differing compliance or reporting requirements or timetables that take into account the
resources available to small entities; (2) the clarification, consolidation, or simplification of compliance or
reporting requirements under the rule for small entities; (3) the use of performance, rather than design,
211

Id.

212

U.S. Census Bureau, “2007 NAICS Definitions: 518210 Data Processing, Hosting, and Related Services”,
http://www.census.gov/naics/2007/def/NDEF518.HTM.
213

See 13 C.F.R. § 121.201, NAICS code 518210.

214

U.S. Census Bureau, 2007 Economic Census, Subject Series: Information, Table 4, “Establishment and Firm
Size: Receipts Size of Firms for the United States: 2007 NAICS Code 518210” (issued Nov. 2010).
215

Id.

216

U.S. Census Bureau, “2007 NAICS Definitions: 519190 All Other Information Services”,
http://www.census.gov/naics/2007/def/ND519190.HTM.
217

See 13 C.F.R. § 121.201, NAICS code 519190.

218

U.S. Census Bureau, 2007 Economic Census, Subject Series: Information, Table 4, “Establishment and Firm
Size: Receipts Size of Firms for the United States: 2007 NAICS Code 519190” (issued Nov. 2010).

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standards; and (4) an exemption from coverage of the rule, or any part thereof, for small entities.219
63.
We did not identify any feasible alternatives that would have lessened the economic
impact on small entities. In the absence of an agreement, there is no other way than through a tariff filing
to effectuate the new default rates where increased rates may be allowed.
E.

Report to Congress

64. The Commission will send a copy of the Order, including this FRFA, in a report to be sent to
Congress and the Government Accountability Office pursuant to the Small Business Regulatory
Enforcement Fairness Act of 1996.220 In addition, the Commission will send a copy of the Order,
including the FRFA, to the Chief Counsel for Advocacy of the Small Business Administration. A copy of
the Order and FRFA (or summaries thereof) will also be published in the Federal Register.221

219

5 U.S.C. § 603.

220

5 U.S.C. § 801(a)(1)(A).

221

See id. § 604(b).

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