Before the Federal Communications Commission Washington, D



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Federal Communications Commission FCC 11-161


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 an 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



REPORT AND ORDER AND FURTHER NOTICE OF PROPOSED RULEMAKING
Adopted: October 27, 2011 Released: November 18, 2011
Comment Date on Sections XVII.A-K: January 18, 2012

Reply Comment Date on Sections XVII.A-K: February 17, 2012

Comment Date on Sections XVII.L-R: February 24, 2012

Reply Comment Date on Sections XVII.L-R: March 30, 2012
By the Commission:  Chairman Genachowski and Commissioners Copps and Clyburn issuing separate statements; Commissioner McDowell approving in part, concurring in part and issuing a statement.
Table of Contents

Heading Paragraph #

I. introduction 1

II. EXECUTIVE SUMMARY 17

A. Universal Service Reform 17

B. Intercarrier Compensation Reform 33

III. Adoption of a New Principle for Universal Service 43

IV. Goals 46

V. Legal authority 60

VI. Public Interest Obligations 74

A. Voice Service 76

B. Broadband Service 86

1. Broadband Performance Metrics 90

2. Measuring and Reporting Broadband 109

3. Reasonably Comparable Rates for Broadband Service 113

VII. ESTABLISHING THE CONNECT AMERICA FUND 115

A. Overview 115

B. The Budget 121

C. Providing Support in Areas Served by Price Cap Carriers 127

1. Immediate Steps To Begin Rationalizing Support Levels For Price Cap Carriers 128

2. New Framework for Ongoing Support in Price Cap Territories 156

D. Universal Service Support for Rate-of-Return Carriers 194

1. Overview 194

2. Public Interest Obligations of Rate-of-Return Carriers 205

3. Limits on Reimbursable Capital and Operating Costs 210

4. Corporate Operations Expense 227

5. Reducing High Cost Loop Support for Artificially Low End-User Rates 234

6. Safety Net Additive 248

7. Local Switching Support 253

8. Other High-Cost Rule Changes 258

9. Limits on Total per Line High-Cost Support 272

10. Elimination of Support in Areas with 100 Percent Overlap 280

11. Impact of These Reforms on Rate-of-Return Carriers and the Communities They Serve 285

E. Rationalizing Support for Mobility 295

1. Mobility Fund Phase I 301

2. Service to Tribal Lands 479

3. Mobility Fund Phase II 493

4. Eliminating the Identical Support Rule 498

5. Transition of Competitive ETC Support to CAF 512

F. Connect America Fund in Remote Areas 533

G. Petitions for Waiver 539

H. Enforcing the Budget for Universal Service 545

1. Creating New Flexibility To Manage Fluctuations in Demand 547

2. Setting Quarterly Demand to Meet the $4.5 Billion Budget 557

3. Drawing Down the Corr Wireless Reserve Account 564

VIII. Accountability and Oversight 568

A. Uniform Framework for ETC Oversight 569

1. Need for Uniform Standards for Accountability and Oversight 570

2. Reporting Requirements 576

3. Annual Section 254(e) Certifications 607

B. Consequences for Non-Compliance with Program Rules 615

C. Record Retention 619

D. USAC Oversight Process 622

E. Access to Cost and Revenue Data 630

IX. Additional Issues 636

A. Tribal Engagement 636

B. Interstate Rate of Return Prescription 638

1. Represcription 639

2. Procedural Requirements 641

C. Pending Matters 646

D. Deletion of Obsolete Universal Service Rules and Conforming Changes to Existing Rules 647

X. OVERVIEW OF intercarrier compensation 648

XI. MEASURES TO ADDRESS ARBITRAGE 656

A. Rules To Reduce Access Stimulation 656

1. Background 661

2. Discussion 662

B. Phantom Traffic 702

1. Background 707

2. Revised Call Signaling Rules 710

3. Prohibition of Altering or Stripping Call Information 719

4. Exceptions 721

5. Signaling / Billing Record Requirements 724

XII. Comprehensive Intercarrier Compensation Reform 736

A. Bill-and-Keep as the End Point for Reform 740

1. Bill-and-Keep Best Advances the Goals of Reform 741

2. Legal Authority 760

3. Other Proposals Considered 782

B. Federal/State Roles in Implementing Bill-and-Keep 788

C. Transition 798

1. Authority To Specify the Transition 809

2. Implementation Issues 811

3. Other Rate Elements 817

4. Suspension or Modification Under Section 251(f)(2) 822

5. The Duty To Negotiate Interconnection Agreements 825

XIII. RECOVERY MECHANISM 847

A. Introduction 847

B. Summary 850

C. Policy Approach to Recovery 854

D. Carriers Eligible To Participate in the Recovery Mechanism 862

E. Determining Eligible Recovery 867

1. Establishing the Price Cap Baseline 868

2. Calculating Eligible Recovery for Price Cap Incumbent LECs 879

3. Calculating Eligible Recovery for Rate-of-Return Incumbent LECs 891

F. Recovering Eligible Recovery 905

1. End User Recovery 906

2. CAF Recovery 921

3. Monitoring Compliance with Recovery Mechanism 921

G. Requests for Additional Support 924

XIV. Intercarrier Compensation for VoIP Traffic 933

A. Background 936

B. Widespread Uncertainty and Disagreement Regarding Intercarrier Compensation for VoIP Traffic 937

C. Prospective Intercarrier Compensation Obligations for VoIP-PSTN Traffic 940

1. Scope of VoIP-PSTN Traffic 940

2. Intercarrier Compensation Charges for VoIP-PSTN Traffic 943

XV. Intercarrier Compensation for Wireless Traffic 976

A. Introduction 976

B. Background 980

C. LEC-CMRS Non-Access Traffic 988

D. IntraMTA Rule 1003

XVI. Interconnection 1009

XVII. FURTHER NOTICE OF PROPOSED RULEMAKING 1012

A. Broadband Public Interest Obligations 1012

1. Measuring Broadband Service 1013

2. Reasonably Comparable Voice and Broadband Services 1018

3. Additional Requirements 1028

B. Connect America Fund for Rate-of-Return Carriers 1031

C. Interstate Rate of Return Represcription 1045

D. Eliminating Support for Areas with an Unsubsidized Competitor 1061

E. Limits on Reimbursable Capital and Operating Costs for Rate-of-Return Carriers 1081

F. ETC Service Obligations 1089

G. Ensuring Accountability 1121

H. Annual Reporting Requirements for Mobile Service Providers 1121

I. Mobility Fund Phase II 1121

1. Overall Design 1122

2. Framework for Support Under Competitive Bidding Proposal 1123

3. Auction Process Framework 1152

4. Tribal Issues 1165

5. Accountability and Oversight 1173

6. Economic Model-Based Process 1174

J. Competitive Process in Price Cap Territories Where the Incumbent Declines to Make a State-Level Commitment 1190

1. Overall Design of the Competitive Bidding Process 1190

2. Framework for Awarding Support Under Competitive Bidding 1191

3. Auction Process Framework 1208

4. Tribal Issues 1219

5. Accountability and Oversight 1220

6. Areas that Do Not Receive Support 1222

K. Remote Areas Fund 1223

1. Program Structure 1225

2. General Implementation Issues 1229

3. Portable Consumer Subsidy Issues 1255

4. Auction Approaches 1276

5. Competitive Evaluation Approach 1290

6. Other Issues 1291

L. Introduction to Intercarrier Compensation 1296

M. Transitioning All Rate Elements to Bill-and-Keep 1297

N. Bill-and-Keep Implementation 1315

O. Reform of End User Charges and CAF ICC Support 1326

P. IP-to-IP Interconnection Issues 1335

1. Background and Overview 1336

2. Scope of Traffic Exchange Covered By an IP-to-IP Interconnection Policy Framework 1344

3. Good Faith Negotiations for IP-to-IP Interconnection 1348

4. IP-to-IP Interconnection Policy Frameworks 1359

Q. Further Call Signaling Rules for VoIP 1399

R. New Intercarrier Compensation Rules 1403

XVIII. DELEGATION TO REVISE RULES 1404

XIX. SEVERABILITY 1405

XX. PROCEDURAL MATTERS 1406

A. Filing Requirements 1406

B. Paperwork Reduction Act Analysis 1407

C. Congressional Review Act 1409

D. Final Regulatory Flexibility Analysis 1410

E. Initial Regulatory Flexibility Analysis 1411

XXI. ORDERING CLAUSES 1412

APPENDIX A — Final Rules

APPENDIX B — Proposed Rules

APPENDIX C — Explanation of Methodology for Modifications to Corporate Operations Expense Formulae

APPENDIX D — Puerto Rico Telephone Company Petition for Reconsideration

APPENDIX E — Verizon Wireless Petition for Reconsideration of the Wireline Competition Bureau’s April 1, 2011Guidance letter to USAC

APPENDIX F — Petitions for Reconsideration of the Corr Wireless Order

APPENDIX G — Rural Association Proposed Rule Changes for USF Reform

APPENDIX H — Modeling Limits on Reimbursable Operating and Capital Costs

APPENDIX I — Estimated Consumer Benefits of Intercarrier Compensation Reform

APPENDIX J — USF/ICC Transformation NPRM Commenters and Reply Commenters

APPENDIX K — USF/ICC Transformation NPRM Section XV Commenters and Reply Commenters

APPENDIX L — Mobility Fund NPRM and Mobility Fund Tribal Public Notice Commenters and Reply Commenters

APPENDIX M — August 3, 2011 Public Notice Commenters and Reply Commenters

APPENDIX N — Illustrative Form of Letter of Credit

APPENDIX O — Final Regulatory Flexibility Analysis



APPENDIX P — Initial Regulatory Flexibility Analysis

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