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If you need the complete document, download the WordPerfect version or Adobe Acrobat version, if available. ***************************************************************** Before the Federal Communications Commission Washington, D.C. 20554 In the Matter of Federal-State Joint Board on Universal Service ) ) ) ) CC Docket No. 96-45 THIRTEENTH REPORT AND ORDER AND FURTHER NOTICE OF PROPOSED RULEMAKING Adopted: December 6, 2000 Released: December 8, 2000 Comment Date: 30 days from publication in the Federal Register Reply Comment Date: 45 days from publication in the Federal Register By the Commission: I. INTRODUCTION 1. In this Thirteenth Report and Order, we adopt the recommendations of the Federal-State Joint Board on Universal Service (Joint Board) for phasing down the interim hold-harmless provision of the forward-looking high-cost universal service support mechanism for non-rural carriers. Specifically, we adopt measures to phase down interim hold-harmless support, excluding Long-Term Support (LTS), through $1.00 reductions in average monthly, per-line support beginning January 1, 2001, and every year thereafter until there is no more interim hold-harmless support. For the reasons discussed below, we believe that these measures will ensure a prompt, equitable phase-down of interim hold-harmless support without causing undue rate disruption. We conclude that several issues, such as appropriate reforms for the LTS program, should be addressed in the context of our pending proceedings for rural high-cost reform and/or interstate access charge reform for rate-of-return carriers. 2. In the attached Further Notice of Proposed Rulemaking, we seek comment on the narrow issue of whether to continue to apply section 54.305 of the Commission's rules to transfers of telephone exchanges between non-rural carriers following the phase-down. Section 54.305 requires a carrier that acquires an exchange to step into the seller's shoes for universal service support purposes. The Commission adopted the rule in 1997 as a stopgap measure to prevent carriers receiving support based on the size of their study areas and embedded costs from "placing unreasonable reliance upon potential universal service support in deciding whether to purchase exchanges[.]" Because all non-rural carriers will receive support based on forward-looking economic costs following the phase-down of interim hold- harmless support, we believe that the need for section 54.305 would no longer exist with regard to transfers between non-rural carriers once the phase-down is complete. III. BACKGROUND 4. In the Ninth Report and Order, the Commission adopted a new high-cost universal service support mechanism for non-rural carriers, based on the estimated forward-looking economic costs of providing services eligible for support. The Commission also adopted an interim hold-harmless provision to protect consumers in high-cost areas from potential rate shock as a result of any sudden, significant increases in rates during the shift to the new, forward-looking mechanism. Under the interim hold-harmless provision, a carrier receives the greater of the support amount for which it qualifies under the forward-looking mechanism or under two preexisting support mechanisms: (1) LTS; and (2) high- cost loop support under Part 36 of the Commission's rules. 5. The Commission emphasized in the Ninth Report and Order that the interim hold- harmless provision is "a transitional provision" to avoid rate shock during the shift to forward-looking support. Accordingly, we requested a Joint Board recommendation as to how interim hold-harmless support can be phased down or eliminated without causing undue rate disruption. The Joint Board released its recommendations on June 30, 2000. The Common Carrier Bureau subsequently requested comment on the Joint Board's recommendations in a public notice. Twenty parties filed comments and reply comments with the Commission concerning the Joint Board's recommendations. 6. The salient features of the Joint Board's recommended phase-down approach, which are discussed in detail below, are as follows. The Joint Board recommended that LTS be maintained under the current rules until the Commission considers appropriate reforms for the LTS program in connection with the pending proceedings for high-cost reform for rural carriers and/or interstate access charge reform for rate-of-return carriers. It further recommended that the Commission phase down the balance of interim hold-harmless support, excluding LTS, through $1.00 reductions in average monthly, per-line support beginning January 1, 2001, and every year thereafter until there is no more interim hold-harmless support. The Joint Board recommended against phasing down interim hold-harmless support that is transferred to a rural carrier when it acquires telephone exchanges from a non-rural carrier, until the Commission completes a review of section 54.305 of the Commission's rules or until rural high-cost reform is complete. VII. PHASE down of interim hold-harmless support A. Long-Term Support 1. Background 2. LTS supports interstate access rates by reducing the carrier common line (CCL) charges of rate-of-return carriers that participate in the National Exchange Carrier Association (NECA) common line pool. In the First Report and Order, the Commission concluded that the LTS program serves the public interest by facilitating interexchange service in high-cost areas, but that modifications were necessary to make LTS explicit, portable, and competitively neutral. Therefore, the Commission continued the LTS program, but removed its recovery from the interstate access charge system and modified its calculation and distribution scheme. The Commission anticipated that LTS for non-rural carriers would be subsumed in the new, forward-looking support mechanism in the near future. The Commission anticipated, however, that rural high-cost reform would require a more extended time period, during which it sought to maintain the existing LTS support structure for rural carriers, as modified. As stated above, the Commission's related proceedings to reform the high-cost support mechanism for rural carriers and to reform the interstate access charge system for rate-of-return carriers are pending. 3. Rural carriers are the primary recipients of LTS and will receive approximately $381 million in LTS in the year 2000. LTS for non-rural carriers will total approximately $97 million in 2000, which is slightly more than half of the projected $184 million in net annual interim hold-harmless support. Three non-rural carriers receive LTS: Roseville Telephone Company (Roseville) in California; North State Telephone Company in North Carolina; and Puerto Rico Telephone Company (PRTC), which is projected to receive over 90 percent (approximately $89 million) of the total annual LTS for all three carriers in 2000. 4. The Joint Board recommended that LTS for non-rural carriers be maintained under the Commission's current rules until the Commission considers appropriate reforms to the LTS program in connection with the pending proceedings for rural high-cost reform and/or interstate access charge reform for rate-of-return carriers. It reasoned that no substitute for LTS currently exists for non-rural carriers, because LTS supports interstate-allocated costs, whereas the forward-looking mechanism supports only intrastate-allocated costs. In addition, the Joint Board expressed concern about the potential rate impact on rural LTS recipients of phasing down LTS for non-rural carriers. Twelve commenters support the Joint Board's recommendation regarding LTS, and none express opposition. WorldCom, however, conditions its support on denial of PRTC's waiver requests. 5. Discussion 6. We adopt the Joint Board's recommendation regarding LTS. The forward-looking mechanism adopted in the Ninth Report and Order does not replace LTS for non-rural carriers, contrary to the Commission's originally anticipated outcome. Therefore, we agree with the Joint Board that LTS for non-rural carriers should be preserved until we have considered further reform of the LTS program. In addition, maintaining LTS for non-rural carriers is consistent with our objective to maintain the current support structure, as modified, for rural LTS recipients pending rural high-cost reform. Because LTS is geared primarily to the needs of small, rural carriers, we find that this determination should take place in the context of our related proceedings to reform the high-cost support mechanism for rural carriers and the interstate access charge system for rate-of-return carriers. We will examine these matters in the near future. A. High-Cost Loop Support for Non-Rural Carriers Under Part 36 of the Commission's Rules 1. Background 7. In addition to LTS, the interim hold-harmless provision provides support to eligible non- rural carriers based on the preexisting high-cost loop support mechanism under Part 36 of the Commission's rules. Under this mechanism, 19 non-rural study areas are projected to receive a total of about $87 million in net annual interim hold-harmless support (excluding LTS) in the year 2000. On a per-line basis, 12 of the 19 study areas receive average, monthly support of less than $1.00, five receive support of less than $2.00, one receives support of $3.26 (GTE North, Inc.-Missouri), and one (PRTC- Central) receives support of $12.06. 8. The Joint Board recommended that the Commission phase down interim hold-harmless support, excluding LTS, through $1.00 reductions in average monthly, per-line support beginning January 1, 2001, and every year thereafter. It also recommended that the Commission reexamine the phase-down schedule in conjunction with our comprehensive review of the forward-looking mechanism, which is to be completed by January 1, 2003. Seven commenters generally favor this phase-down schedule. Six commenters, representing LEC and state recipients of interim hold-harmless support, oppose any phase-down at this time. The District of Columbia Public Service Commission (DC Commission) advocates immediate, across-the-board elimination of interim hold-harmless support. 1. Discussion 9. We adopt the Joint Board's recommendation that interim hold-harmless support, excluding LTS, be phased down beginning January 1, 2001, through annual $1.00 reductions in each carrier's average monthly, per-line support until this support is eliminated. This approach will promptly phase out interim hold-harmless support for the majority of carriers currently receiving less than $1.00 per-line/per-month, without reducing any carrier's average monthly, per-line support by more than $1.00 per year. Thus, there will be no significant, sudden reductions in per-line support to an individual study area. We agree with the Joint Board that this approach is a reasonable means of ensuring a prompt, equitable phase-down of interim hold-harmless support without causing undue rate disruption, consistent with the objectives we announced in the Ninth Report and Order. 10. We also agree with the Joint Board that the phase-down schedule should be reexamined in conjunction with our review of the forward-looking mechanism, which is to be completed by January 1, 2003. At that time, PRTC is likely to be the only carrier still receiving interim hold-harmless support, and more information will be available on the impact of the phase-down in Puerto Rico. We disagree with those commenters that argue for a more accelerated phase-down for PRTC. Based on the current record, we cannot determine whether acceleration of the annual phase-down rate after two years, as WorldCom proposes, would result in rate shock. Our approach, however, will ensure that rate shock is minimized. We reject the arguments of the Florida Commission and WorldCom that the current schedule discriminates in favor of PRTC. The phase-down rate is the same for all interim hold-harmless recipients. Indeed, although PRTC's support will take longer to phase down than any other carrier's because it receives higher amounts of per-line support, PRTC also will lose more total interim hold- harmless support than any other carrier as a result of the phase-down. We conclude the approach recommended by the Joint Board reasonably balances the need to phase down interim hold-harmless support in an equitable way with a desire to minimize potential rate shock for Puerto Rico. 11. We disagree with commenters who argue that interim hold-harmless support should be preserved at its current level pending resolution of other federal high-cost issues, including rural high- cost reform and exhaustion of "all judicial appeals[.]" We adopted the interim hold-harmless provision to ensure a nondisruptive transition to the forward-looking mechanism for non-rural carriers, not to provide a means of postponing or avoiding the need for a transition in the event that some parties raised concerns regarding this mechanism. As stated above, we are mindful of the interrelationships between different elements of the federal universal service scheme, but we are not persuaded that any of the high- cost issues or decisions cited by commenters justify postponement of this transition. Based on our examination of the record, we conclude that the public interest will be served by expeditiously advancing the transition to forward-looking support for non-rural carriers. 1 Mechanics of Phase-Down 1. To ensure that the phase-down conforms with the quarterly schedule on which interim hold-harmless support is calculated, the Joint Board recommended that the applicable annual reductions be subtracted from the interim hold-harmless support that a carrier otherwise would be eligible to receive on an ongoing, quarterly basis. We adopt this recommendation. We disagree with the New York Department of Public Service's (NYDPS) argument that this approach would defeat the intent of the phase-down because a carrier may continue to be eligible for interim hold-harmless support during a particular year even if it does not qualify for such support in a given quarter. The possibility that interim hold-harmless support amounts will vary from quarter to quarter does not affect the consistency of the annual phase-down rate. We also agree with the Joint Board that this method of calculating interim hold-harmless support during the phase-down is the most equitable to interim hold- harmless recipients and the easiest to administer. 2. We also conclude that the targeting provisions of the Ninth Report and Order should govern the distribution of phased-down support. Although non-rural carriers receive interim hold-harmless support based on embedded costs averaged over their entire study areas, the support is targeted for competitive purposes to their highest-cost exchanges based on forward-looking economic costs. The Joint Board did not address the issue of whether phased-down support should be targeted to individual exchanges, except in connection with transferred exchanges. We find, however, that targeting phased-down interim hold-harmless support to a carrier's highest-cost exchanges is consistent both with the Joint Board's recommendations and with the Ninth Report and Order. Accordingly, we disagree with PRTC's argument that any phase-down should be calculated on a wire- center basis to avoid "a premature and detrimental reduction in support to the highest cost wire centers, contrary to the Commission's targeting rules." 1 Calculation of High-Cost Loop Support for Rural Carriers 1. We adopt the Joint Board's recommendation that the "interim cap" on high- cost loop support for rural carriers be calculated as if phased-down interim hold-harmless support were being distributed to non-rural carriers, pending reform of the high-cost support mechanism for rural carriers. Under the current rules, universal service support for all carriers under Part 36 is restricted by a cap that limits the total increase in support each year to the annual growth in nationwide loops. To avoid smaller annual increases in the support available to rural carriers as a result of the shift to forward- looking support for non-rural carriers, we directed in the Ninth Report and Order that the cap be calculated as if all carriers continue to participate in the preexisting Part 36 high-cost support mechanism. Subtracting phased-down support amounts from calculation of the cap likewise could result in smaller annual cap increases, because the prior year support level used to calculate the cap includes the high-cost loop support for non-rural carriers under Part 36 that will be phased down as a result of the approach we adopt herein. Accordingly, we agree with the Joint Board that an interim "placeholder" measure is warranted to avoid significant and immediate changes in high-cost support for rural carriers as a result of the phase-down. We disagree with the NYDPS's argument that "the Joint Board is seeking to provide [rural carriers] with yet additional support based upon the operations of non- rural carriers." The calculation method we adopt is consistent with our commitment "not to consider significant changes in rural carriers' support until after the Rural Task Force and the Joint Board have made their recommendations" regarding rural high-cost reform. In accordance with the Joint Board's recommendations, we also conclude that phased-down support for non-rural carriers (support calculated as a "placeholder") should not be collected or distributed to other carriers. We note that we expect this placeholder to remain in effect for a limited time, as we are committed to moving forward expeditiously on high-cost reform for rural carriers. a. Transferred Interim Hold-Harmless Support 2. The transfer of interim hold-harmless support is governed by the targeting provisions of the Ninth Report and Order and section 54.305 of our rules. As stated above, although carriers receive interim hold-harmless support based on embedded costs averaged over their entire study areas, the support is targeted for competitive purposes to their highest-cost telephone exchanges based on forward- looking economic costs. Section 54.305 requires a carrier that acquires an exchange to step into the seller's shoes for universal service support purposes. Under these provisions, as of the date of the sale, the acquiring company receives the same per-line, targeted interim hold-harmless support amount for the transferred exchange that the seller was eligible to receive as of the date of the sale. The Joint Board identified an issue, however, as to "whether transferred interim hold-harmless support should be phased down following the transfer, as it would have been if it had not been transferred, or should remain frozen at the per-line support level as of the sale date." To date, a total of approximately $9 million in annual interim hold-harmless support has been transferred. 3. The Joint Board expressed general concern about the operation of section 54.305 with regard to transfers between carriers that are not both receiving support based on forward-looking economic costs. It urged the Commission to consider alternatives to the rule. In the meantime, or until rural high-cost reform is completed, the Joint Board recommended that interim hold-harmless support for exchanges transferred to a rural carrier not be phased down following the transfer. The Joint Board recommended, however, that interim hold-harmless support for exchanges transferred to non-rural carriers be phased down over the same time period as the seller's support would have been phased down. Six commenters generally support the Joint Board's recommendations. AT&T and the NYDPS oppose these recommendations. 4. We are mindful of the Joint Board's concerns regarding the operation of section 54.305. As the Joint Board recognized, however, the rule serves the important purpose of preventing carriers receiving support based on the size of their study areas and embedded costs from "placing unreasonable reliance upon potential universal service support in deciding whether to purchase exchanges[.]" Section 54.305 was adopted as a temporary measure to be utilized during our transition to universal service support mechanisms that provide support to all carriers based on the forward-looking economic costs of operating a given exchange. The Joint Board is currently considering reform of the rural high- cost support mechanism, including the operation of section 54.305 for rural carriers. We believe that the rural high-cost reform proceeding is the most appropriate context in which to reexamine the operation of section 54.305 with regard to transfers involving rural carriers. 5. We therefore adopt the Joint Board's recommendation not to phase down interim hold- harmless support for eligible exchanges transferred to rural carriers until we reexamine section 54.305 or until rural high-cost reform is complete. We disagree with AT&T's argument that section 54.305 requires that an acquiring rural carrier "receive no more than the necessary [forward-looking] support amount" following the phase-down. The Commission did not determine in the Ninth Report and Order that forward-looking support calculated under the new mechanism for non-rural carriers is appropriate for rural carriers, as AT&T's argument suggests. We recognize that the Joint Board's recommended approach raises gaming concerns with regard to transfers from nonrural to rural carriers. However, the window of opportunity for gaming will be small, because under the phase-out schedule most exchanges will no longer receive interim hold-harmless support as of January 1, 2001. On balance, we conclude that adoption of the Joint Board's recommended approach would serve the public interest. 6. We also adopt the Joint Board's recommendation that interim hold-harmless support for exchanges transferred to non-rural carriers be phased down over the same time period as the seller's support would have been phased down. We agree with the Joint Board that this approach will ensure a prompt and equitable phase-down of transferred interim hold-harmless support, and discourage carriers from transferring exchanges to delay or avoid the phase-down of interim hold-harmless support. In addition, we adopt the recommendation that targeted support for exchanges transferred to non-rural carriers be phased down by an equal percentage for each year of the phase-down period, on an exchange- by-exchange basis. This approach will be administratively simple and predictable for acquiring non- rural carriers. VII. FURTHER NOTICE OF PROPOSED RULEMAKING 8. As set forth above, section 54.305 of the Commission's rules requires a carrier that acquires a telephone exchange from an unaffiliated carrier to step into the seller's shoes for universal service support purposes. The Commission adopted the rule in 1997 as a stopgap measure to prevent carriers receiving support based on the size of their study areas and embedded costs from "placing unreasonable reliance upon potential universal service support in deciding whether to purchase exchanges[.]" The Commission anticipated that the rule would no longer be necessary once all carriers received support based on forward-looking economic costs. 9. Following the phase-down of interim hold-harmless support, all non-rural carriers will receive high-cost support based on the forward-looking economic costs of operating a given exchange. As a result, "the level of support will not be a primary factor in a [non-rural] carrier's decision to purchase exchanges because the carrier's support will not be based on the size of the study area nor embedded costs." We believe this rule change is necessary regardless of the outcome of the current Joint Board examination of the RTF Recommendation on section 54.305, because application of section 54.305 to transfers between non-rural carriers may impede operation of the forward-looking mechanism by preventing calculation of the forward-looking economic costs of operating a transferred exchange on an ongoing, quarterly basis. We, therefore, seek comment on whether to amend section 54.305 of our rules so that it does not apply to transfers of exchanges between non-rural carriers following the phase- down of interim hold-harmless support. X. PROCEDURAL MATTERS a. Regulatory Flexibility Act Certifications Final and Initial 11. The Regulatory Flexibility Act (RFA) requires an Initial Regulatory Flexibility Analysis (IRFA) of the possible significant economic impact on small entities of proposed policies and rules, and a Final Regulatory Flexibility Analysis (FRFA) whenever an agency subsequently promulgates a final rule, unless the agency certifies that the proposed or final rule will not have "a significant economic impact on a substantial number of small entities," and includes the factual basis for such certification. The RFA generally defines "small entity" as having the same meaning as the terms "small business," "small organization," and "small governmental jurisdiction." In addition, the term "small business" has the same meaning as the term "small business concern" under the Small Business Act. 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). The SBA defines a small telecommunications entity in Standard Industrial Classification Code 4813 (Telephone Communications, Except Radiotelephone) as an entity with 1,500 or fewer employees. 12. We conclude that neither an FRFA nor an IRFA is required here. The foregoing Thirteenth Report and Order and Further Notice of Proposed Rulemaking adopts a final rule and proposes a rule change. The rules adopted and the proposed rules affect the amount of high-cost support provided to non-rural carriers. Non-rural carriers generally do not fall within the SBA's definition of a small business concern because they are usually large corporations or affiliates of such corporations. Thus, the final rules adopted here do not affect a substantial number of small entities. Therefore, we certify, pursuant to section 605(b) of the RFA, that the final rule adopted and the rule change proposed in the Thirteenth Report and Order and Further Notice of Proposed Rulemaking will not have a significant economic impact on a substantial number of small entities. The Commission will send a copy of the Thirteenth Report and Order and Further Notice of Proposed Rulemaking and of this certification to the Chief Counsel for Advocacy of the SBA. In addition, this certification will be published in the Federal Register. The Commission will send a copy of this Thirteenth Report and Order and Further Notice of Proposed Rulemaking, including a copy of this certification, in a report to Congress pursuant to the SBREFA. a. Effective Date of Final Rules 13. We conclude that the amendments to our rules adopted herein shall be effective upon publication in the Federal Register. In this Thirteenth Report and Order we conclude that the phase- down of interim hold-harmless support, excluding LTS, will be implemented beginning January 1, 2001. Thus, the amendments must become effective by January 1, 2001. Making the amendments effective 30 days after publication in the Federal Register would jeopardize the required January 1, 2001 implementation date. This implementation date is important because January 1, 2001 is the beginning of a new funding year, and interim hold-harmless support is a transitional funding mechanism that increases the size of the federal high-cost fund and should be phased down as rapidly as possible without causing undue disruption to consumer rates in high-cost areas. Accordingly, pursuant to the Administrative Procedure Act, we find good cause to depart from the general requirement that final rules take effect not less than 30 days after their publication in the Federal Register. a. Paperwork Reduction Act 14. The instant Report and Order contains no information collections, and the instant Further Notice proposes no information collections. a. Comment Filing Procedure 15. Pursuant to sections 1.415 and 1.419 of the Commission's rules, 47 C.F.R.  1.415, 1.419, interested parties may file comments 30 days or fewer from publication in the Federal Register, and reply comments 45 days or fewer from publication in the Federal Register. Comments may be filed using the Commission's Electronic Comment Filing System (ECFS) or by filing paper copies. See Electronic Filing of Documents in Rulemaking Proceedings, 63 Fed. Reg. 24,121 (1998). 16. Comments filed through the ECFS can be sent as an electronic file via the Internet to . Only one copy of an electronic submission must be filed. In completing the transmittal screen, commenters should include their full name, Postal Service mailing address, and the applicable docket or rulemaking number. Parties may also submit electronic comments by Internet e-mail. To receive filing instructions for e-mail comments, commenters should send an e- mail to ecfs@fcc.gov, and should include the following words in the body of the message, "get form ." A sample form and directions will be sent in reply. 17. Parties who choose to file by paper must file an original and four copies of each filing. All paper filings must be sent to the Commission's Secretary, Magalie Roman Salas, Office of the Secretary, Federal Communications Commission, 445 12th Street, S.W., Washington, D.C. 20554. Parties who choose to file by paper also must send three paper copies of their filing to Sheryl Todd, Accounting Policy Division, Common Carrier Bureau, Federal Communications Commission, 445 Twelfth Street S.W., Room 5-B540, Washington, D.C. 20554. In addition, parties who choose to file by paper must send diskette copies to the Commission's copy contractor, International Transcription Service, Inc., 1231 20th Street, N.W., Washington, D.C. 20037. XVIII. ORDERING clauseS 21. Accordingly, IT IS ORDERED that, pursuant to the authority contained in sections 1-4, 201-205, 214, 218-220, 254, 303(r), 403, and 410 of the Communications Act of 1934, as amended, 47 U.S.C.  151-154, 201-205, 214, 218-220, 254, 303(r), 403, and 410, this Thirteenth Report and Order IS ADOPTED. 22. IT IS FURTHER ORDERED that Part 36 of the Commission's rules, 47 C.F.R. Part 36, IS AMENDED as set forth in Appendix B hereto, effective immediately upon publication in the Federal Register. 23. 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 B hereto, effective immediately upon publication in the Federal Register. 24. IT IS FURTHER ORDERED that, pursuant to the authority contained in sections 1-4, 201-205, 214, 218-220, 254, 303(r), 403, and 410 of the Communications Act of 1934, as amended, 47 U.S.C.  151-154, 201-205, 214, 218-220, 254, 303(r), 403, and 410, this Further Notice of Proposed Rulemaking IS ADOPTED and comments ARE REQUESTED as described above. 25. IT IS FURTHER ORDERED that the Commission's Consumer Information Bureau, Reference Information Center, SHALL SEND a copy of the Thirteenth Report and Order and Further Notice of Proposed Rulemaking, including the Regulatory Flexibility Act Certifications, to the Chief Counsel for Advocacy of the Small Business Administration. FEDERAL COMMUNICATIONS COMMISSION Magalie Roman Salas Secretary APPENDIX A Parties Filing Comments and Reply Comments Comments: 1. AT&T 2. General Services Administration 3. National Exchange Carrier Association, Inc., National Rural Telecom Association, and Organization for the Promotion and Advancement of Small Telecommunications Companies 4. National Telephone Cooperative Association 5. Public Service Commission of the District of Columbia 6. Puerto Rico Telephone Company, Inc. 7. Roseville Telephone Company 8. Sprint Corporation 9. State of Florida Public Service Commission 10. State of New York Department of Public Service 11. Telecommunications Regulatory Board of Puerto Rico 12. United States Telecom Association 13. Verizon 14. WorldCom, Inc. 15. Wyoming Public Service Commission Reply Comments: 1. AT&T 2. General Services Administration 3. National Exchange Carrier Association, Inc., National Rural Telecom Association, and Organization for the Promotion and Advancement of Small Telecommunications Companies 4. Puerto Rico Telephone Company, Inc. 5. Qwest Corporation 6. Rural Independent Competitive Alliance 7. Valor Telecommunications Enterprises, LLC APPENDIX B Final Rules Part 36 of Title 47 of the Code of Federal Regulations is amended as follows: PART 36 JURISDICTIONAL SEPARATIONS PROCEDURES; STANDARD PROCEDURES FOR SEPARATING TELECOMMUNICATIONS PROPERTY COSTS, REVENUES, EXPENSES, TAXES AND RESERVES FOR TELECOMMUNICATIONS COMPANIES Subpart F Universal Service Fund 1. Section 36.601 is amended to add the following sentence at the end as paragraph (c):  36.601 (c) . . . Support amounts calculated pursuant to this subpart F but not received due to the phase down of interim hold-harmless support or the receipt of forward-looking support pursuant to section 54.311 of this Chapter shall not be redistributed to other carriers. Part 54 of Title 47 of the Code of Federal Regulations is amended as follows: PART 54 UNIVERSAL SERVICE Subpart D Universal Service Support for High Cost Areas 4. Add paragraph (d) to  54.311 to read as follows:  54.311 (d) Phase down of interim hold-harmless support. Beginning January 1, 2001, the interim hold- harmless support for which a non-rural incumbent local exchange carrier qualifies under paragraph (a) of this section, excluding Long Term Support, shall be phased down through annual $1.00 reductions in average monthly, per-line support. Applicable annual reductions shall be subtracted from the total amount of interim hold-harmless support that a non-rural incumbent local exchange carrier otherwise would be eligible to receive on an ongoing, quarterly basis. The provisions of paragraph (b) of this section shall apply to the total amount of phased-down interim hold-harmless support provided to each non-rural incumbent local exchange carrier. (1) Interim hold-harmless support for a wire center transferred to a carrier that does not meet the definition of rural telephone company in  51.5 of this chapter shall be phased down following the transfer over the same time period as the seller's support would have been phased down, by an equal percentage for each year of the phase- down period. (2) Interim hold-harmless support for a wire center transferred to a carrier that meets the definition of rural telephone company in  51.5 of this chapter shall remain frozen at the per-line support level as of the sale date. STATEMENT OF COMMISSIONER HAROLD FURCHTGOTT-ROTH, APPROVING IN PART AND DISSENTING IN PART Re: Federal-State Joint Board on Universal Service, Thirteenth Report and Order and Further Notice of Proposed Rulemaking, CC Docket No. 96-45. I cannot endorse the Commission's decision that "hold-harmless" loop support be phased out over the next three years, so that non-rural carriers eventually will receive universal service support based exclusively on the model that the Commission adopted last year. That model never worked, and it has no prospect of working. As I have said before, the model does not satisfy the Act's basic requirements that universal service support be "specific" and "predictable," and I believe that relying in any way on this model does not meet the requirements of the statute. I therefore dissent from those aspects of this order that reach that conclusion.