Part II. Public Utility Commission of Texas

Chapter 23. Substantive Rules

Universal Service Fund

16 TAC §§23.131, 23.133, 23.134, 23.136, 23.138, 23.142, 23.143, 23.147, 23.148, 23.150

The Public Utility Commission of Texas (commission) adopts new §§23.131 (relating to Texas Universal Service Fund (TUSF)), 23.133 (relating to Texas High Cost Universal Service Plan (THCUSP)), 23.134 (relating to Small and Rural Incumbent Local Exchange Carrier (ILEC) Universal Service Plan), 23.136 (relating to Implementation of the Public Utility Regulatory Act §56.025), 23.138 (relating to Additional Financial Assistance), 23.142 (relating to Service and Link Up Service Programs), 23.143 (relating to Tel-Assistance Service), 23.147 (relating to Designation of Local Exchange Carriers as Eligible Telecommunications Providers to Receive Texas Universal Service Funds), 23.148 (relating to Designation of Common Carriers as Eligible Telecommunications Carriers to Receive Federal Universal Service Funds), and 23.150 (relating to Administration of Texas Universal Service Fund) with changes to the proposed text published in the August 26, 1997 Texas Register (22 TexReg 8494). These rules are adopted under Project Number 14929.

The following parties filed initial comments in response to the proposed rules published on August 26, 1997, in the Texas Register : AT & T Communications of the Southwest, Inc. (AT & T); the Center for Economic Justice (CEJ); Consumers Union (CU); GTE Southwest Incorporated (GTE); MCI Telecommunications Corporation (MCI); the Office of Public Utility Counsel (OPC); PrimeCo Personal Communications, L.P. (PrimeCo); Southwestern Bell Telephone Company (SWBT); Sprint Communications Company, L.P., United Telephone Company of Texas, Inc. d/b/a Sprint and Central Telephone Company of Texas d/b/a Sprint (Sprint); John Staurulakis, Inc. (JSI); Teleport Communications Houston, Inc. and TCG Dallas (TCG); the Texas Statewide Telephone Cooperative, Inc. (TSTCI); the Texas Telephone Association (TTA); and Sprint Spectrum L.P. d/b/a Sprint PCS (Sprint PCS).

The Advisory Commission on State Emergency Communications (ACSEC), AT & T, CU, GTE, OPC, SWBT, MCI, PrimeCo, Sprint, TCG, the Texas Association of Long Distance Telephone Companies (TEXALTEL), TSTCI, and TTA filed reply comments.

All of the parties providing comments generally supported the proposed rules; however, as summarized herein, they offered certain revisions and modifications to the proposal.

Prior to the publication of the proposed rules, the commission staff held workshops on the following dates: October 22, 1996, February 24, 1997, April 14, 1997, May 20, 1997, and June 24, 1997. In addition a commissioners' work session on Project No. 14929 was held on November 12, 1997.

A public hearing on the proposed rules was held at the commission offices on October 15, 1997, at 9:00 a.m. Representatives from GTE and TTA attended the hearing and provided comments. To the extent that these comments differ from the submitted written comments, such comments are summarized herein.

The new rules are responsive to the state and federal goals of ensuring that basic local telecommunications service can be provided at reasonable rates and in a competitively neutral manner while fostering a free competitive market in the telecommunications industry. The purpose of the Texas Universal Service Fund (TUSF) is to implement a competitively neutral mechanism that enables all residents of the state to obtain the basic telecommunications services needed to communicate with other residents, businesses, and governmental entities. As a result of changes in pricing policies in the transition to a competitive marketplace, targeted financial support may be needed in order to provide and price basic telecommunications services in a manner to allow universal accessibility by consumers. The TUSF will assist local exchange companies (LECs) in providing basic local telecommunications services at reasonable rates in high cost rural areas and to qualifying low-income consumers.

The Public Utility Regulatory Act (PURA) §51.001 prescribes the policies of Texas with respect to telecommunications. Pursuant to §51.001, the state shall promote diversity of telecommunications providers and interconnectivity, encourage a fully competitive telecommunications marketplace, and maintain a wide availability of high quality, interoperable, standards-based telecommunications services at affordable rates. PURA §51.001 further states that the goals outlined above are best achieved by legislation that modernizes telecommunications regulation by guaranteeing the affordability of basic telephone service in a competitively neutral manner and by fostering free market competition in the telecommunications industry.

PURA, Chapter 56, specifically provides for Telecommunications Assistance and the Universal Service Fund. Subchapter B of Chapter 56 establishes the TUSF. PURA requires that the TUSF assist LECs in providing basic local telecommunications service, including Lifeline service, at reasonable rates in high cost rural areas; reimburse qualifying entities for revenues lost as a result of providing Tel-Assistance services to qualifying low-income consumers; reimburse telecommunications carriers providing statewide telecommunications relay access service and qualified vendors providing specialized telecommunications device distribution service for the hearing-impaired and speech-impaired; and reimburse the Texas Department of Human Services (TDHS), the Texas Department for the Deaf and Hard of Hearing, the TUSF administrator, and the commission for costs incurred in implementing the provisions of PURA Chapters 56 and 57.

The federal Telecommunications Act of 1996 (FTA) §254 sets forth federal universal service requirements and principles and allows a state to adopt regulations not inconsistent with the Federal Communication Commission's (FCC's) rules to preserve and advance universal service.

The FCC's Report and Order, In the Matter of Federal-State Joint Board on Universal Service in CC Docket Number 96-45, FCC 97-157 (May 7, 1997) (Report and Order), implemented FTA §254 and adopted a federal universal service support mechanism to ensure that all consumers have access to quality telecommunications services at affordable rates. In its Report and Order, the FCC added the principle of competitive neutrality to the principles prescribed by FTA §254. The FCC further noted in paragraphs 9 and 10 of the Report and Order that Congress specified that universal service support "should be explicit," and that as explained in the Joint Explanatory Statement of the Committee of the Conference, Congress intended that, to the extent possible, "any support mechanisms continued or created under the new section 254 should be explicit, rather than implicit as many of the support mechanisms are today." The FCC stated that universal service is currently achieved largely through implicit subsidies, and that, with the procedures and policies set forth in its Report and Order, these implicit subsidies will begin to be replaced with explicit subsidies. The existing implicit support mechanisms may not be sustainable in a competitive market because ILEC rates currently providing implicit support may be subject to competitive pressures. By "implicit subsidies" the FCC means that a single company is expected to obtain revenues from sources at levels above cost and to price other services allegedly below cost.

In paragraph 14 of the Report and Order, the FCC stated its belief that as competition develops states will be compelled by marketplace forces to move existing implicit support toward more explicit, sustainable mechanisms consistent with FTA §254(f). The commission agrees that it is appropriate state telecommunications policy to move existing implicit support toward more explicit, sustainable mechanisms. Explicit support mechanisms must be established to maintain reasonable rates. The commission also finds that in order for the rules to be competitively neutral, and that for customers of rural and high cost areas to receive the benefits of competition, the rules must move toward making all support mechanisms available to any service provider.

Section 23.133, the Texas High Cost Universal Service Plan (THCUSP), implements PURA §56.021(1) by establishing guidelines for financial assistance to Eligible Telecommunications Providers (ETPs), which are LECs certified eligible under §23.147 for TUSF, serving high cost rural areas of the state, other than study areas of small and rural incumbent local exchange companies (ILECs), so that basic local telecommunications service may be provided at reasonable rates in a competitively neutral manner.

Section 23.133 provides that the THCUSP will support basic local telecommunications service provided by an ETP over an eligible line in high cost rural areas of the state and is limited to those services carried on all flat rate residential lines and the first five flat rate single-line business lines at a business customer's location. The section also provides the definition of basic local telecommunications services.

In addition, the section establishes the criteria for determining the amount of support available under the THCUSP. The section provides that the commission shall calculate the amount of support by comparing the forward-looking economic cost for providing basic local telecommunications service to the applicable benchmark as determined by the commission for residential or single-line business service. Under this section, this support is available to an ETP for serving an eligible line whether such ETP is an ILEC or a competitive local exchange carrier (CLEC).

The section provides that, within 30 days of the effective date of the section, the commission shall initiate a proceeding to determine the support amounts. It also requires that the commission review the support amounts not less than every three years from the effective date of the section to determine, among other issues, whether there is additional or remaining implicit support that should be made explicit.

Section 23.134, the Small and Rural Incumbent Local Exchange Carrier Universal Service Plan, also implements PURA §56.021(1) by establishing guidelines for financial assistance to ETPs that provide service in the study areas of rural ILECs' areas and small ILECs' areas in the state so that basic local telecommunications service may be provided at reasonable rates in a competitively neutral manner.

Section 23.134 provides that this plan will support basic local telecommunications service provided by an ETP over an eligible line in high cost rural areas of the state and is limited to those services carried on all flat rate residential lines and the first five flat rate single-line business lines at a business customer's location.

In recognition that PURA and the FTA in many respects place small and rural ILECs on a different competitive footing from other ILECs, the commission, in adopting this section, establishes a support mechanism that will enable small and rural ILECs to prepare for the advent of competition and the eventual transition to the THCUSP.

The section sets forth the manner in which the amount of support shall be calculated for each small or rural ILEC study area. This support calculation is based upon existing revenue streams of small and rural ILECs and does not rely upon the calculation of forward-looking economic costs. However, this support is available to an ETP for serving an eligible line whether the ETP is an ILEC or a CLEC.

The section provides that, within 30 days of the effective date of the section, the commission shall initiate a proceeding to determine the support amounts. It also requires the commission, within 90 days of an FCC order implementing new federal universal service support rules for rural, insular, and high cost areas, to initiate a project to investigate a mechanism by which ETPs receiving support pursuant to this section would transition to receiving support pursuant to §23.133.

Section 23.136 implements the provisions of PURA §56.025. This section enables ILECs serving fewer than five million access lines to receive universal service support, if an increase in rates would adversely affect universal service, in order to offset certain governmental agency actions. In order to harmonize PURA §56.025 with the pro-competitive intent of the FTA, this section places the burden of proof on the claimant to demonstrate the adverse financial impact the government order, rule or policy had on the carrier seeking assistance under the provision of PURA §56.025(c), (d), and/or (e). Although PURA §56.025 does not require a proceeding regarding a company's revenue requirements with respect to the universal service distributions made pursuant to PURA §56.025, it does not prohibit the commission from concurrently exercising its authority to examine the overall revenue or earnings position of the ILEC seeking PURA §56.025 support if the ILEC has not elected under PURA Chapter 58, Incentive Regulation, or Chapter 59, Infrastructure Plan. Furthermore, the commission believes that it is charged with considering both increases and decreases in revenues caused by a governmental action.

Section 23.136 also sets forth the requirements of the ILEC seeking to recover funds from the TUSF under this section and the guidelines for commission processing of the applications.

Section 23.138, Additional Financial Assistance, ensures that ILECs that have been designated as ETPs, other than those regulated under PURA Chapters 58 or 59, needing funds in addition to those received under §§23.133, 23.134, or 23.136 this title, may upon a revenue requirement showing receive additional financial assistance from the TUSF.

The section also sets forth the requirements of the ILEC requesting to recover funds from the TUSF and the guidelines for the commission to use in approving the requests under this section.

Section 23.142, Lifeline Service and Link Up Service Programs, is adopted in order to provide targeted assistance to qualifying low-income customers. This section is consistent with the FCC rules regarding these programs and with the definition of basic local telecommunications services as provided in PURA §51.001(1), which includes Lifeline service.

This section defines the Lifeline and Link Up Service Programs, the Lifeline support amounts, and the obligations of the consumer, TDHS, and the eligible telecommunications carrier. It also sets forth tariff filing requirements.

Section 23.143 implements Tel-Assistance Service pursuant to PURA, Chapter 56, Subchapter B. It sets forth the requirements for the provision of Tel-Assistance, the obligations of the consumer, TDHS, and the LEC, along with tariff filing requirements.

The commission believes that the programs prescribed by §23.142 and §23.143 will help to defray the costs of telephone service for qualifying low-income subscribers and thereby promote universal service.

Section 23.147 provides the requirements for the commission to designate LECs as ETPs to receive funds from the TUSF pursuant to PURA §56.023. The section sets forth the requirements for establishing ETP service areas, the criteria for designation of ETPs, and the designation of more than one ETP in a service area. The section also provides requirements for the application for ETP designation and commission processing of the application. Under the section, an ETP may seek to relinquish its ETP designation, and an auction procedure for replacing the sole ETP in an area is outlined.

Section 23.147 requires that for an ILEC to be designated as an ETP to receive THCUSP support, it must reduce existing revenues by an amount equal to the amount it will receive from the THCUSP or it must agree to reduce its THCUSP receipts by certain existing revenue streams. If the ETP selects the first alternative, in order to accomplish this revenue reduction, the ILEC must reduce rates, as determined appropriate by the commission. This requirement prevents an ILEC from receiving a windfall due to receipt of funds from the new THCUSP and from the revenues generated by existing rates. Also, if the ILEC chooses to reduce its rates, rather than reduce its THCUSP receipts, the rule serves to remove implicit subsidies from existing ILEC rates and make support for USF explicit.

Section 23.148 provides the requirements for the commission to designate common carriers as eligible telecommunications carriers to receive federal universal service funds. The Communications Act of 1934, as amended, 47 U.S.C. §214(e) (West Supp. 1997) (the Act), §214(e)(2) requires that state commissions designate a common carrier that meets the requirements of the Act §214(e)(1), as amended, as an eligible telecommunications carrier for a service area designated by the state commission. This section sets forth the requirements for establishing service areas, the criteria for determining eligible telecommunications carrier status, the criteria for determining an eligible telecommunications carrier's federal universal service support, and the designation of more than one eligible telecommunications carrier in a service area. The section also provides the requirements for commission proceedings and applications to designate eligible telecommunications carrier status. Under the section, the commission may designate an eligible telecommunications carrier for unserved areas, and an eligible telecommunications carrier may relinquish its designation.

Section 23.150 establishes the administration of the TUSF in compliance with PURA §§56.021, 56.022, 56.023, 56.024, and 56.026.

The section defines the programs to be included in the TUSF. It establishes the responsibilities of the commission and the requirements for and the duties of the TUSF Administrator. It provides for a transition from the existing USF programs to the TUSF and sets forth the requirements to determine the amount needed by the TUSF.

The section provides the requirements for the assessments to the TUSF and disbursements from the TUSF. In addition, it addresses the recovery of TUSF assessments. Under this section, a telecommunications provider may assess a percentage-based surcharge on all of its retail customers, except Lifeline, Link Up, and Tel-Assistance service customers.

The adopted sections also specify various reporting requirements.

The commission finds that the rules adopted prescribe a TUSF that complies with and implements the goals of PURA, the FTA, and the FCC's Report and Order. The commission finds that these rules ensure that basic local telecommunications service can be provided at reasonable rates and in a competitively neutral manner while fostering a free competitive market in the telecommunications industry.

In adopting these rules, the commission makes other minor modifications for the purposes of clarifying its intent. The commission also revises the references to PURA 1995 so that they conform to the recently adopted Texas Utilities Code. All comments including any not specifically referenced herein, were fully considered by the commission.

Section 23.133 establishes guidelines for financial assistance to eligible telecommunications providers (ETPs) serving high cost areas of the state that are not in the study areas of small and rural ILECs.

SWBT opined that PURA §56.021 limits the commission's authority to establish a universal service fund to those areas that are both high cost and rural. SWBT suggested that the commission include a qualification in the TUSF plan that should the plan be held unlawful, participating companies could revert to their pre-TUSF plan access and toll rates. SWBT explained that the companies would then be protected against the risk that the commission's proposed language may be unlawful.

PURA §56.021 provides universal service support for "high cost rural areas." The commission interprets PURA §56.021 as allowing TUSF support for all high cost areas in Texas. FTA §254(b)(3) provides universal support for "rural and high cost areas." The commission revises §23.133(a) so that it parallels the language in PURA §56.021, and declines SWBT's suggestion to qualify the rules with regard to the commission's authority. The commission modifies §23.133(d) and §23.147(b)(2) by inserting the term "rural" so that they are consistent with §23.133(a). The commission will determine which areas of the state constitute "high cost rural areas" in the compliance proceeding held pursuant to §23.133.

Section 23.133(b) establishes definitions of words and terms used in §23.133. As proposed, §23.133(b)(2) defined business lines and §23.133(b)(9) defined residential lines.

TTA recommended revising §23.133(b)(2) and (9) to redefine "residence line" and "business line" as lines which "do not have multi-line hunting, trunking or other special capabilities." TTA explained that this change would avoid a situation where a carrier might seek funding for lines that have these capabilities, but where the carrier does not apply a separate charge for that capability.

The commission modifies the definition of business line in §23.133(b)(2) and the definition of residential line in renumbered §23.133(b)(10) by replacing the term "charges" with the term "capabilities" to eliminate the possibility of the situation described by TTA.

The commission also clarifies that an eligible line is a residential or single-line business line that an ETP serves using its own facilities, the purchase of unbundled network elements (UNEs), or a combination of its own facilities and purchase of UNEs. The commission adds this definition of eligible line as the renumbered §23.133(b)(5). In addition, the commission clarifies that the ETP providing service to an end user through total service resale will not receive support for that line. Rather, the underlying ETP will receive the support if such line is an eligible line.

As proposed, §23.133(d) established THCUSP support for basic local telecommunications service (BLTS) for all flat rate residential lines and all flat rate single-line business lines. The commission requested comment on whether to restrict support payments to primary flat rate lines serving residential and business customers.

AT & T, MCI, TCG and PrimeCo advocated restricting support payments to primary lines. AT & T took the position that businesses should not be subsidized because they are for-profit ventures and that telephone service is simply a cost of doing business. AT & T argued that a subsidy for businesses without a line limitation is not good policy for the state. AT & T suggested that the commission limit the subsidy to one line per business and only for businesses that are "truly small" so as to meet the goal of promoting economic development. AT & T stated that the limitation of the subsidy to one line per residence is sound policy because it ensures that every household has access to telecommunications, but also limits the overall size of the fund.

In its reply comments, TCG advised limiting support to primary single line residential service, indicating that such a limitation is enforceable. TCG's recommended enforcement for the restriction includes customer certification, a database of support-eligible locations, and periodic audits of statistically significant samples of support recipients.

PrimeCo also urged the commission to restrict support payments to primary flat-rate lines serving residential and business customers, at least at the outset. PrimeCo argued that it seemed inappropriate to increase the bills of middle and low income Texans simply to support secondary lines used by people and businesses who were capable of paying the full cost of that secondary service.

MCI asserted that the commission should only provide TUSF support for primary residential lines because all other lines are not "basic telecommunications services." PrimeCo also argued that at this time "basic" should not include secondary residential lines for teen-agers, computers and fax machines. PrimeCo advised beginning with a narrow definition of other services that will receive support in order to minimize the impact on consumers' bills. PrimeCo indicated that if the planned re-examination of the TUSF reveals that additional lines or services merit support, the support could be broadened. PrimeCo concluded that the commission has the authority to begin an investigation at any time to examine whether rural Texans need support for secondary residential lines to participate in the information age.

GTE, TTA, PrimeCo, SWBT, and Sprint discussed the pricing implications of restricting support to primary lines. GTE argued that such a restriction would introduce an artificial distortion in the relative prices of primary and secondary lines and result in a situation that is not competitively neutral. TTA stated that restricting support payments to primary lines would result in the imposition of unfunded mandates on all ETPs, and insufficient and unpredictable support for universal service. TTA argued that ILECs that have elected regulation under PURA Chapters 58 and 59 would be restricted from increasing BLTS rates but would be required to provide high- cost additional lines at a below-cost rate. TTA also argued that non-electing ILECs would be required to file rate cases in order to recover costs. TTA stated that the remaining ETPs would also be restricted from increasing rates in a competitive market. TTA advised the commission to approve universal service support for all eligible residential and single-line business lines.

In its reply comments, PrimeCo stated that the benefits to all telecommunications customers of keeping the TUSF contribution down outweigh the extra cost borne by some ratepayers for second lines. SWBT stated that there is no reason to restrict support from second and additional lines because basic rates for these lines are subject to regulatory constraints.

Sprint argued that providing support for business lines and second residential lines widens the application of subsidies, perhaps beyond what is required to achieve universal service. Nevertheless, Sprint stated that as long as there is a disparity between the prices and the costs of providing business and additional residential lines in high cost areas, the fund must be sized to include these lines.

OPC stated that restricting support payments to primary lines would contravene two express goals of FTA: ensuring the availability of reasonably comparable services at reasonably comparable rates, and promoting use of the telecommunications network for advanced services. OPC used the same argument in its reply comments, urging that the commission reject AT & T's proposal to restrict support to the first line for both residences and businesses.

Sprint indicated that it recognizes the practical need for support payments for business lines and additional residential lines. GTE, TTA, and SWBT discussed specific practical issues related to restricting support to primary lines. GTE argued that there is no effective means to prevent customers from evading the primary/secondary distinction through the selection of a second carrier to provide another "primary" line. TTA and SWBT opined that there would be strong incentive to subscribe to multiple first lines, either under different names or from multiple ETPs, in order to avoid the higher charges.

GTE pointed out that neither MCI, AT & T, nor PrimeCo discussed how a restriction to primary residential lines could be realistically implemented, administered, or monitored in a competitive local exchange telecommunications environment. GTE urged the commission to reject their position and maintain the rule as proposed. OPC stated that determining which line is primary presents an administrative nightmare, conceivably requiring scrutiny of family relationships or living arrangements. OPC stated in its reply comments that the arbitrary determination that only one line is necessary per household undermines the ability of multi-family households to receive basic service. OPC opined that the practical difficulty of administering a one household-one line rule would make such an approach extremely burdensome. TTA concluded that customers would be confused and not understand or willingly accept the higher rates for additional lines. SWBT warned that enforcement of such a restriction would likely be impossible. SWBT stated that LECs do not have the tools to monitor their customers' living and other arrangements. SWBT stated that customers will likely not understand the reasons for a differential between their first and subsequent lines. SWBT stated that it is naive to think that business office personnel will be able to explain adequately and intelligently the intricacies of telephone pricing and costing when customers ask about them. SWBT opined that as competition develops, prices will be more rational and customers will grow accustomed to more local pricing plans. SWBT concluded that perhaps the issue can be addressed more easily in the future.

The commission declines to modify §23.133(d) with respect to providing support to all residential lines. The commission shares the concerns raised by AT & T, MCI, TCG, and PrimeCo that providing universal service support in high cost areas for second residential connections and businesses with multiple connections is not necessary to fulfill the goal of universal service which is to ensure that every household has access to BLTS. The commission is also mindful that overly expansive universal service support mechanisms may potentially harm all consumers by increasing the expense of telecommunications services for all. From a pragmatic perspective, however, the commission agrees that the administrative and practical problems the parties have identified with restricting support to primary flat rate lines serving residential customers constitutes a compelling argument against modification of the rule at this time. Further development of the competitive telecommunications marketplace may address some of the problems associated with customer confusion, price signals, and practical administration of restricted residential support described by the parties. The commission will revisit these issues when it reviews TUSF rules in three years.

Since the number of business lines is significantly smaller than that of residential lines, it is the commission's opinion that LECs can more easily overcome the practical problems associated with restricting the number of single-line business lines supported. Therefore, the commission revises §23.133(d) so that an ETP shall receive THCUSP support for the first five single-line business lines it serves at a business customer's premises. It is the commission's opinion that this restriction will appropriately limit the scope of TUSF support while ensuring that rates for BLTS are reasonable for all small businesses.

Section 23.133(d)(1) sets forth the initial definition of BLTS. Section 23.133(d)(1)(E) itemized access to 911 service and dual party relay service as part of BLTS.

TCG recommended that §23.133(d)(1)(E) be broken into separate elements, so that access to 911 services is listed separately from dual party relay service. TCG wanted to modify language regarding the criteria to be mandatory by inserting the word "shall" in the introductory language to the list of criteria.

The commission notes TCG's comment regarding §23.133(d)(1)(E) and separates access to 911 service from dual party relay service by creating a new subparagraph (F) in §23.133(d)(1). Lifeline and Tel-Assistance are included in the definition of BLTS in PURA §51.002. Therefore, for clarification, the commission also adds a new subparagraph (J) to §23.133(d)(1) to conform to the statutory definition of BLTS.

The commission declines TCG's suggestion to insert "shall" in the introductory language of the list of criteria. The commission finds it redundant to modify the language so that the criteria are mandatory because LECs are required to provide the services listed in §23.133(d)(1)(E) as part of the criteria for designation as ETPs listed in §23.147(d)(1)(B).

Section 23.133(e) establishes the criteria for determining the amount of support an ETP can receive under THCUSP. Section 23.133(e)(1)(B) establishes residential and business revenue benchmarks using statewide average revenues per line. The commission invited comment on whether a revenue benchmark should be used to calculate the level of support ETPs will receive for serving rural and high cost areas under §23.133.

AT & T, CU, TCG, OPC, TTA, SWBT, and Sprint all supported the use of a revenue benchmark. Some parties suggested modification to the proposed rules. GTE recommended use of company- specific rates. MCI recommended that the commission should determine the benchmark during the compliance proceeding.

AT & T argued that the benchmark must include the appropriate access revenue that would include any contribution above the cost of access. AT & T claimed that otherwise, interexchange carriers (IXCs) will be double-paying for universal service; first through access rates that still contain an implicit subsidy; and second through the USF assessment itself.

CU commented that the calculation of residential revenues per line appeared to ignore the revenue generated by ELCS surcharges, which, because they are revenues generated by the access lines, should be included. CU noted that the phrase "reasonable portion of toll and access services" was undefined. CU recommended re-writing the rule to ensure that revenues from toll and access that are associated with the local loop in the cost model are included in the revenue calculation in the same proportion. CU asserted that, if toll and access are adjusted, ELCS surcharges should be similarly recalculated.

SWBT responded to CU's assertion in its reply comments, indicating that ELCS surcharges are included in its local service revenue. SWBT stated that CU's argument that the plan fails to take into account ELCS surcharges is simply wrong. SWBT contended that there is no statutory authority for the argument that ELCS surcharges should be recalculated based on any reductions made to access and intraLATA toll rates. SWBT argued that PURA §55.048 has no provision for recalculation of the charges under any circumstances.

CU alleged that if all sources of revenue are not taken into consideration, the LECs will be earning excess profit. In its reply comments, SWBT opined that CU's argument about excess profits is a red herring. SWBT argued that participation in the universal service plan should be revenue neutral, but only at the inception of the plan. SWBT explained that the plan does not guarantee continued revenue streams in the face of competition and that if CLECs acquire more and more customers in high cost areas, ILECs will lose the universal service contribution attributable to those customers, and the new entrant will receive them.

In its reply comments, TCG strongly supported the commission's recommendation to calculate the subsidy requirement as the difference between the total revenue per line and the forward-looking cost of those services, rather than the difference between basic service rates and the cost of basic service. TCG argued that this approach recognizes the fact that telephone subscribers buy more than basic service and the subscriber line charge (SLC). TCG contended that any shortfall due to basic service rates, not covering the basic service cost (forward-looking or otherwise), may be erased by the sale of discretionary services. TCG opined that the basic service rates are a device to gain customers for other more profitable products and services. TCG argued that the revenue from discretionary services should be included in the benchmark for determining the support requirement. TCG remarked that a windfall would be prevented because the benchmark would take into account discretionary service revenue that would lead to a smaller universal service fund. TCG reasoned that cost-based rates will result from competition among local service providers for the entire package of discretionary services.

OPC emphasized that all sources of revenue, including enhanced services, be considered in establishing the amount an ETP may draw from the TUSF. OPC argued that the cross-subsidy and joint cost language of 47 U.S.C. 254(k) recognizes two distinct steps that are necessary to have fair and efficient pricing in the emerging, competitive environment - a strict prohibition on below-cost pricing and a reasonable recovery of joint and common costs across services that share facilities. OPC opined that arguments that try to ignore the fact that the loop is a joint and common facility used by many services are wrong on the economics, wrong on the judicial interpretation and wrong on the meaning of the new law. OPC stated that those who argue for allocation of the loop to basic service assert that the consumer's decision to buy local services causes the loop cost. OPC explained that a customer's intent could not be determined because customers may just as well think they are getting local, long distance and vertical services when they buy telephone service. OPC opined that assigning costs on the basis of a guess about the intention of ratepayers when they make a purchase is not a sound basis for economic analysis. OPC reasoned that a sound basis is to analyze the facilities and functionalities necessary and actually used in the production of goods and services. As an example, OPC stated that in order to produce a long distance call, one needs distribution plant, as well as switching plant and transportation. OPC explained that services that use facilities should be considered to cause or benefit from the deployment of those facilities. OPC also explained that every service that uses a facility should help pay for it and that costs for joint and common facilities should be recovered on the basis of the nature and quality of use that each service makes of those facilities. OPC argued that efforts to set the threshold on the basis of basic service revenues will create an extremely large state USF and is contrary to the approach being taken by the FCC. OPC explained that proposals that fail to take other revenues into account in estimating the extent of support needed unnecessarily shift costs onto basic service. OPC concluded that such an approach would result in a USF that would be far larger than needed and/or the cost of basic service will be higher than necessary.

In its reply comments, GTE disagreed with OPC's identification of the problem involved with setting the revenue benchmark as one of cost allocation. GTE strongly disagreed that the loop is a common cost that must be allocated to all services, but noted that adding toll and access to a revenue benchmark does not even accomplish this unwarranted goal. GTE argued that the inflation of the benchmark simply serves to minimize the level of explicit supports and cause the carrier to continue to bear negative margins on its basic services, as well as maintain implicit supports in its other revenue streams. GTE restated that its local residential service is currently priced at a level that results in a loss of approximately $310 million annually, and that local business services lose over $33 million annually. GTE argued that only a revenue benchmark that generates a funding level that makes these subsidies explicit will approach the sufficiency requirement of FTA §254(b)(5). GTE indicated that OPC's "misdirected fear" of under-contribution from other revenues towards the costs of the loop could never materialize. GTE commented that under-contribution could only occur if the revenue benchmark was set excessively low. GTE also remarked that an excessively high revenue benchmark will result in an unlawful suppression of the TUSF by failing to make all supports explicit. In addition, GTE recommended that the revenue benchmark be reviewed more frequently than every three years. GTE concluded that an expedited review process is crucial if toll and access are included in the benchmark as the universal service reductions must be rolled into the calculation to compute universal service support.

GTE opposed the use of "arbitrarily selected" statewide average revenues to calculate the benchmark to which costs will be compared to determine the per-line universal service support. GTE argued that the inclusion of discretionary services and a reasonable portion of toll and access services in a revenue benchmark runs counter to the goals of universal service.

In its reply comments, OPC indicated that the proposed rule makes it clear that the commission understands that revenues and costs must be matched. OPC stated that by including "reasonable share of revenues" the commission has clearly recognized that the costs and revenues must be analyzed. OPC indicated that the matching of costs and revenues could be accomplished in one of two ways under the proposed rule: (1) the commission may conclude that it is necessary to pull incremental costs of the other services into the universal service analysis as well as into the other cost proceedings that it is undertaking; and (2) the commission may decide that it is necessary to leave a reasonable share of revenues from other services out of the universal service analysis to cover costs left out of the universal service analysis. In either event, OPC concluded the commission will have avoided the mistake of mismatching that the companies erroneously accuse it of having made.

TTA advised the commission to adopt a revenue benchmark consisting of all of the non- optional charges that an ILEC's customer pays when subscribing to BLTS. TTA suggested that the benchmark equal the sum of the applicable flat rate for local service, the non-optional charges for extended area service (EAS) and expanded local calling service (ELCS), any separate touch call charges, and the applicable interstate SLC. TTA asserted that an interim THCUSP mechanism should be implemented to support the difference between the actual tariffed rate and the statewide average revenue benchmark. TTA reasoned that the interim mechanism would terminate once all regulated BLTS rates are allowed to equal the average revenue benchmark. TTA concluded that this interim plan would ensure that adequate THCUSP support would be available to any ETP serving a rural or high cost area of the State.

TTA also argued that the revenue benchmark proposed in the rule is a continuation of the implicit support mechanisms embedded in the ILECs' rates. TTA opined that including toll and access revenues in the revenue benchmark would not be appropriate in a competitive marketplace because an ETP can not rely on the access and toll revenues generated from customers in one area to support its cost of providing BLTS to customers residing in another area. TTA asserted that as markets become more and more competitive, similar problems will occur with inclusion of discretionary services in the benchmark. TTA further argued that the proposed revenue benchmark fails to meet the FTA objectives to provide specific, predictable, and efficient support for universal service.

TTA recommended amending §23.133(e)(1)(B)(i) and (ii) by deleting the phrase "as well as a reasonable portion of toll and access services." Alternatively, TTA suggested that the commission amend the rule to (1) clarify that interstate toll and access revenues are excluded; (2) require recalculation of the benchmark every six months; and (3) ensure that the benchmark is established after the toll and access rate reductions associated with the USF. Additionally, TTA recommended that if the benchmark includes toll and access revenues then the commission should simultaneously adopt an order increasing all interconnection rates, unbundled loop rates and resold loop rates by an amount equivalent to the subsidy included in the benchmark.

SWBT argued that the commission should use a revenue benchmark to calculate the level of support, but indicated that the most appropriate revenue benchmark would be the statewide average residential rate (estimated by SWBT to be $13.50 for all ILECs in Texas). SWBT indicated that a $13.50 benchmark would result in $1.090 billion in support for SWBT and $1.798 billion in support for the industry. SWBT indicated that it would agree to a smaller fund based on a revenue benchmark that would at least identify and deal with the implicit support contained in access and intraLATA toll rates. SWBT opined that such a revenue benchmark would include average residential/business end user common line (EUCL) and vertical services revenue. SWBT estimated these to be $23.58 for residence and $38.78 for business. These benchmarks would result in $482 million in support for SWBT and $983 million in support for the industry. SWBT asserted that access and toll revenues should not be included in the benchmark.

In its reply comments, AT & T found TTA's and SWBT's arguments for the exclusion of discretionary, toll, and access services in the calculation of the revenue benchmark to be flawed. AT & T explained that the only instance when such a rule would be appropriate would be when the retail prices for those services were simultaneously brought to cost, so no subsidy would exist in those rates. AT & T stated that this would not be possible absent a complete rate restructuring case, which could not be completed before the commencement of the TUSF. AT & T also opposed a dual standard, as proposed by TTA, because this would cause an unquantified increase of the TUSF with no concrete proposal on timing or phase-out of such a plan.

In its reply comments OPC opined that the ILECs had gone to great lengths to argue that there is a federal mandate for rate rebalancing or for the creation of a massive universal service fund. OPC argued that SWBT's proposal violates the conditions of the FTA because the same facilities are necessary for providing basic service and to complete a toll call: loop, transport, and switching. OPC indicated that IXCs have kept up their efforts to get a free ride on the loop by increasing the cost burden placed on basic service. OPC stated that MCI's creative use of FTA §254(k) would be much more credible if it did not immediately contradict that section by seeking to allocate 100% of common loop costs to basic service, thereby violating the cost allocation safeguards. OPC further argued that because of the misallocation of loop costs, the estimates of universal service funding requirements presented by GTE and SWBT involve a gross overestimation of the size of the fund. OPC concluded that because other services use common facilities, the charge for those facilities is not a subsidy, it is a recovery of costs. OPC declared that the claim that this violates the law is baseless.

Sprint opined that since basic services do not include toll and access services, their inclusion in the benchmark would not be consistent with the purpose of the fund. Sprint reiterated its position in its reply comments. Sprint objected to including any portion of toll and access services in the revenue benchmark calculation. Sprint argued that the inclusion of a "reasonable portion" of toll and access services would only result in a continuation of an implicit subsidy mechanism that is not sustainable in a competitive marketplace and clearly contrary to the FTA.

Sprint recommended that the revenue benchmark be set at the national average urban rate for basic local service including surcharges and taxes, SLC and touch-tone. Sprint also argued that ILECs with local rates below the national urban rate ($20 by Sprint estimates) be allowed to transition to this benchmark over time.

TTA indicated in its reply comments that if the Benchmark Cost Proxy Model (BCPM) cost model is used, Sprint's proposal of a revenue benchmark at the national average urban rate of $20 might be workable.

In its reply comments, SWBT discussed Sprint's recommended use of the national average revenue rate of $20. SWBT urged the commission to use Texas figures where available, as the adoption of universal service principles is for use in this state, not nationally.

GTE championed the comparison of company-specific costs to company-specific tariffed rates charged in each census block group (CBG). GTE argued that such a comparison would include the monthly recurring rate, SLC, and any other mandatory charge such as non-optional EAS. GTE objected to the inclusion of revenues from toll, access and vertical services in the statewide average benchmark. However, as long as the rules include toll, access, and vertical service revenues in the benchmark, GTE agreed that it is necessary to include these costs.

In its reply comments, GTE restated its opinion that in order to work properly, the revenue benchmark must include only those rates or revenues that are currently subsidized. GTE cited TTA's enumeration of practical problems caused by the inclusion of toll and access revenues in the benchmark. GTE opined that the inclusion would require an increase to wholesale rates so that alternatives to toll and access contribute an equivalent subsidy. GTE asserted that an insufficient fund will continue the current disparity between interstate and intrastate long-distance rates. GTE argued that the inclusion is anti-competitive as other toll and access providers will support only the net of universal service cost less the "reasonable portion of toll and access" while the ILEC must support the entire cost structure.

In response to GTE's comment that support flows from other services cannot be sustained in a competitive environment, especially when competitors can buy UNEs from the ILECs at cost-based rates, OPC stated that claims that the costs cannot be recovered are incorrect. OPC opined that the price for those services must reflect those costs and recovery of legitimate joint and common costs will not be competed away. To the extent that competitors are more efficient and provide these joint and common facilities at lower costs, the cost of service will decline. OPC continued that the claim that these costs cannot be figured into the estimation of the universal service fund on economic grounds is undermined, once the fact that they are joint and common costs is recognized. OPC argued that since they must be incurred by all who provide the services, they must be included in the final price of the service. OPC stated that allowing incumbents to recover joint and common costs excessively from basic service would not promote efficiency and would frustrate competition, allowing incumbents to price more competitive services at an artificially low level.

OPC argued that advocates of recovering all loop costs from basic local service often apply inconsistent cost recovery principles, confusing the question of fixed versus variable cost recovery with the question of the recovery of joint and common costs. The fact that loop costs are more fixed and that switching costs are more variable should not dictate whether or not joint costs are recovered from the services that use a facility. OPC opined that this confuses the issue of who should pay with the separate question of how they should pay and that it may be just as efficient to recover the costs through a fixed IXC charge as a fixed end user charge. OPC claimed that the incumbents continue to confuse the question of fixed versus variable recovery of costs with the question of joint costs. OPC stated that GTE's complaint is about variable charges recovering fixed costs, not whether joint and common costs should be recovered. The solution is a careful analysis of what costs and revenue opportunities are fixed and which are variable and a fixed recovery of fixed joint and common costs. OPC opined that there are significant questions about the "fixed" nature of the loop cost, especially if cost causation is taken into account. OPC concluded that the costs of the loop vary with respect to the services for which it will be used and that while the costs may be fixed once the technology is deployed, the revenue opportunity is variable.

MCI cautioned the commission not to commit to any benchmark calculation until the cost results by CBG had been determined. In its reply comments, MCI suggested that the determination of the proper benchmark and the access/toll split be decided in a contested proceeding because these are fact-specific issues.

The commission notes CU's concern regarding ILECs and will strive to create a fund of the appropriate size. The commission shall establish benchmarks that will include revenues from basic and discretionary services, and a reasonable portion of access and toll revenues. The commission notes OPC's cost allocation arguments and declines TTA, Sprint, and GTE's suggestion to exclude toll and access revenues from the benchmark. By including revenues from discretionary services and a reasonable portion of access and toll revenue, the commission acknowledges that part of the costs of providing BLTS are recovered through the provision of non-basic services. This is consistent with historical rate design principles. The commission also recognizes that toll and access service provide contribution to support loop costs. The commission rejects CU's suggestion to define in this rulemaking proceeding what constitutes a "reasonable portion of toll and access" because the commission will establish that amount during the compliance proceeding. The commission recognizes that its actions in this rulemaking and related federal actions may impact toll and access revenues. The commission intends to reflect such action in its decision regarding the reasonable amounts of toll and access included in the benchmark.

The commission declines to adopt the alternative benchmarks proposed by Sprint, SWBT, GTE, and TTA. None of these alternatives would be competitively neutral while at the same time recognizing the revenues received by Texas LECs. Since the commission will select a forward- looking economic cost methodology that will accommodate Texas-specific inputs, as determined by the commission, to estimate the cost of providing BLTS in Texas, Sprint's proposal to use a national average rate is simply inappropriate for the TUSF. SWBT's proposal to use the statewide average residential rate ignores revenues generated by vertical services, and would seemingly place the entire cost burden of the loop and local switch on basic service. GTE's recommended use of company- specific tariffed rates would result in a benchmark that is not competitively neutral because payments to CLECs would be based on ILEC rates. TTA asserted that the benchmark should only include revenues associated with basic services and non-optional charges such as ELCS, EAS and SLC. Using TTA's benchmark would place the full burden of the loop and switch cost on those services.

The commission declines TTA's suggestion to implement an interim THCUSP mechanism to support the difference between the actual tariffed rate and the statewide average revenue benchmark. THCUSP support is designed to aid ETPs in keeping rates for BLTS reasonable. The commission has concluded that an ETP's need for support will be determined by the difference between the forward looking economic cost of serving a specific high cost area and the statewide average benchmark. If an ILEC determines that this support is inadequate, an ILEC may request additional support from the TUSF pursuant to §23.136 and §23.138. ILECs that have not elected to regulation under PURA Chapters 58 or 59 may also file rate cases to increase rates.

The commission also declines to adopt TTA's suggestion that interconnection rates, unbundled loop rates, and resold loop rates be increased by the amount equivalent to the subsidy included in the benchmark. The commission finds that providers of local exchange service using interconnection, UNEs and resale will be contributing to the overall cost of service. UNEs purchasers in particular are bearing the full cost of the loop, switch, and transport elements that they buy. Therefore if the commission raised those rates, the ILECs would be over-recovering their costs. Further, the interconnection rates were not set in this proceeding and are applicable to specific agreements between ILECs and CLECs. The commission concludes that it is inappropriate to address those rates in this broader rulemaking proceeding.

The commission declines to implement TTA and GTE's suggestion to modify the rule so that the benchmark is recalculated more frequently because §23.133(g) and §23.150(g) provide for sufficient review of the TUSF. Pursuant to subsection (g) the commission shall review the THCUSP within 90 days of the FCC's adoption of an order implementing new or amended federal universal service support rules for rural, insular, and high cost areas. Pursuant to §23.150(f)(2)(B), the TUSF administrator shall determine, on a periodic basis approved by the commission, the amount needed to fund the TUSF. The commission makes no revisions to §23.133(e)(1)(B) based upon the parties' comments.

Sprint stated that it is unclear if the statewide average is on an ETP by ETP basis, resulting in a unique revenue benchmark for each LEC, or whether there is one revenue benchmark for the entire state that will be used by all ETPs. Sprint argued that if there is a statewide benchmark that is to be used by all LECs then those companies with revenues above the benchmark should only be able to receive support based on the difference in cost and their own particular revenue amount. Sprint continued that LECs that have revenues below the benchmark should be allowed to raise their rates to the revenue benchmark amount. Sprint concluded that if this solution is not acceptable, then the revenue benchmark should be calculated on a statewide, company-specific level.

The commission declines Sprint's suggestion to use a benchmark calculated on a company- specific basis. The commission clarifies that it will establish one statewide residential benchmark and one statewide business benchmark based on the statewide average revenues of all the ETPs seeking support from the THCUSP. The commission concludes that use of statewide benchmarks, rather than use of company-specific benchmarks, will create a more predictable fund size and make support payments more uniform across the state. The commission also notes that one statewide residential benchmark and one statewide business benchmark will make the fund less complicated to administer. While the benchmark remains the same for all ETPs, the amount of support received for eligible lines may vary because of the differing forward-looking costs calculated for the geographic areas in which the ETPs provide service. The commission notes that ILECs that have elected to regulation under PURA Chapters 58 or 59 are operating under a rate cap and cannot raise the rates for BLTS until the end of the election period. Non-electing ILECs may file rate cases to raise rates for BLTS.

Section 23.133(e)(1)(B)(ii) contained the calculation for the statewide business revenue benchmark.

The commission modifies §23.133(e)(1)(B)(ii) to clarify that only single-line business lines will be included in the calculation.

Section 23.133(e)(1)(C) stated that support under the THCUSP is portable with the consumer.

The commission modifies §23.133(e)(1)(C) to clarify that an ETP shall only receive support for residential lines and the first five single-line business lines at a business customer's premises that the ETP is serving over eligible lines.

Proposed §23.133(e)(2)(A) stated that the commission would use the BCPM to determine the per-line cost, on a CBG basis, of providing supported services. The commission invited parties to comment on the use of the BCPM, as opposed to the Hatfield Model (HM), to calculate the cost of providing universal service under proposed §23.133. The parties discussed various issues generally related to the use of cost proxy models and specific aspects of the BCPM and HM models.

GTE, SWBT, and TTA advocated using actual costs instead of a cost proxy model. GTE detailed its entitlement to recover all its costs including forward looking costs, the costs incurred to support universal service. GTE proposed that universal service support be made explicit through a calculation that compares an estimate of the price the market would set for basic local service in a particular CBG with the tariffed rate in that CBG. GTE presented information showing the amount of implicit intrastate and interstate universal service support embedded in its current rates. GTE asserted that all of this implicit support should be made explicit and recovered through the TUSF. GTE indicated its intent to seek an interim universal service support surcharge to preserve the existing universal support levels because the commission requires GTE to provide UNEs or allow CLECs to engage in facilities-based competition prior to the adoption of a sufficient and explicit universal service mechanism.

GTE also argued that it is inappropriate for the commission to use a single statewide model or "one size fits all" approach. GTE indicated that the commission should not adopt either BCPM or the HM, but use company-specific studies or models that aggregate the results consistently across the state. GTE further argued that its own cost model, the Integrated Cost Model (ICM), best reflects its network architecture and service area characteristics and therefore should ultimately be used to establish GTE's cost of providing universal service.

GTE continued its discussion in its reply comments, outlining three fundamental issues that any universal service plan must address. First, GTE stated, ILECs have historically been mandated to increase rates for non-basic services such as toll, discretionary and various business offerings to offset below-cost provisioning of basic services statewide. Second, GTE noted, ILECs provide basic service to some customers in high density areas at rates higher than the cost of providing the services. GTE illustrated that it suffers a shortfall that cannot be recovered because statewide averaging of revenues leaves the support provided by "above-cost basic" service customers understated. GTE argued that only by deaveraging revenues as it has deaveraged costs can the commission make the "above-cost basic" support explicit. Third, GTE commented, there is a disparity in basic and non-basic rates between various ILECs. GTE argued that companies whose customers provide greater than average revenue per customer will benefit in comparison to those companies whose customers provide less than average revenue. GTE stated that if revenues are averaged between companies, the companies with lower basic revenues and thus higher non-basic support requirements, will receive insufficient funds to make all their support explicit. GTE asserted that companies with higher basic charges and lower non-basic supports receive even greater funds than needed to make all supports explicit and that this result of inter-company averaging would be unfair and inconsistent with the FTA. GTE stated that the plan is clearly deficient in addressing the three problems it outlined and that the simple solution is to compare each company's cost to provide basic service to its tariffed basic rates for each company.

MCI supported GTE's request for the commission to reduce access charges to cost-based, market rates. MCI defended this statement by highlighting that artificially high access charges skew the market through improper pricing signals. MCI argued that the commission should reject GTE's request for an interim universal service surcharge because it will only increase GTE's already "exorbitant" returns. MCI said the commission should reject GTE's suggestion to base UNE prices on actual costs because it is inconsistent with the FTA, FCC regulations and commission arbitration decisions. Furthermore, MCI averred that this rulemaking is not the proper forum to address this issue. MCI stated that the commission should reject GTE's suggestion to compare company-specific costs with company-specific rates by CBG because to do so would not guarantee comparable rates between high cost areas and urban areas.

SWBT and TTA also stated that actual costs of providing local exchange service should be used for the purpose of calculating the cost of universal service funding. TTA remarked that these book costs would provide the basis needed to enable the commission to identify and remove implicit support from the ILECs' current rates, as required by the FTA. In its reply comments, MCI stated that the commission should reject SWBT's suggestion to use actual costs for the same reasons it should reject GTE's embedded cost argument.

In its reply comments, OPC discussed ILEC recovery of embedded costs. OPC stated that ILECs' claims that all of their costs and revenues must be replaced at embedded historical levels with no questions asked is an erroneous argument. OPC opined that this claim permeates the analysis both in the question of how to model costs and in the not-so-veiled threat of future court cases regarding stranded costs and constitutional taking. OPC argued that utilities have always been under an obligation to provide economic service and they have never been legally authorized to recover costs associated with inefficiencies, excess profits, or strategic investments. OPC asserted that the language in FTA that allows companies to recover their "costs" is not a blank check to claim guaranteed recovery of all costs that the companies incur, since the requirement that rates be just and reasonable still holds. OPC speculated that the growth of competition may only make the uneconomic nature of delivery of service obvious and palpable; it does not create the fundamental obligations of utilities. OPC stated that the fact that the commission approved some rates years ago does not mean that those rates were not reviewable. OPC contended that the fact that the commission (or the legislature) invokes competition as a more precise regulatory mechanism for determining what is economic, does not change or create the requirement that the utility provide economic service - that obligation has always been at the heart of traditional regulation. OPC contended that in a competitive market, investments that made sense at one time are frequently rendered uneconomic by technological progress or market change. Just because the investments made sense at one time does not ensure their soundness over time. OPC asserted that the claim for stranded cost recovery has no basis in the FTA.

The commission declines to adopt the recommendations of GTE, SWBT and TTA to use embedded or actual costs to determine the level of THCUSP support. Use of embedded costs to determine the level of THCUSP support would reflect the cost structure of a specific ILEC and therefore would not be competitively neutral. The commission concludes that it would be poor policy to base support payments for THCUSP on the costs of an ILEC because an ILEC has a completely different physical network and financial structure from CLECs. Use of a forward- looking cost methodology is the best manner for the commission to ensure competitive neutrality when calculating THCUSP support. Through the compliance proceeding the commission and the parties will be able to openly examine, debate, and resolve costing issues. Use of a forward looking cost methodology will also allow for targeting of support to small geographic areas. The commission is confident that specific geographic targeting will create a smaller, more effective fund that provides support only where it is necessary. The commission notes that a final order was issued in SWBT's last rate case, Docket No. 8585, on November 29, 1990. The commission issued a final order in GTE's last rate case, Docket No. 5610, on February 23, 1989. If the commission were to use embedded costs, it is the commission's opinion that these two companies would need to file a rate case in order to develop up-to-date embedded cost information.

GTE suggested that under PURA and the U.S. and Texas Constitutions it was entitled to recover stranded historical costs. While recognizing that the focus of this proceeding centers around a determination of the cost of universal service, GTE encouraged the commission to consider the role of the TUSF as it relates to setting prices for all of GTE's offerings, including retail services, unbundled network elements, and resold services. GTE stated that the commission's policy decisions regarding the TUSF would affect the level of ILEC stranded costs, but did not recommend that these costs be recovered through the TUSF. GTE also alleged that an unconstitutional taking of an ILEC's property may occur if a methodology other than an ILEC's actual costs were used to determine the cost of providing basic local telecommunications service. In support of its position, GTE cited Duquesne Light Co. v. Barasch , 488 U.S. 299 (1989), FPC v. Hope Natural Gas Co. , 320 U.S. 591 (1944), and Tenoco Oil Co. V. Department of Consumer Affs. , 876 F.2d 1013 (1st Cir. 1989), for the proposition that utility rates must provide not only for a company's cost, but also for a fair return on investment. GTE also noted that the Eighth Circuit decision in Iowa Utilities Board , 1997 U.S. App. LEXIS 18183, recognized that compensatory prices were required in order to avoid a taking.

MCI objected to GTE's argument that it is legally entitled to recover all of its embedded costs. MCI argued that GTE gave up its entitlement to recover stranded costs when it elected into incentive regulation under PURA Chapter 58.

The commission disagrees with the arguments presented by GTE. The use of a forward looking cost methodology to determine the cost of providing basic local telecommunications service will not result in a taking of private property in contravention of the Fifth and Fourteenth Amendments.

The Supreme Court decisions applying the Takings Clause to public utility ratemaking do not support GTE's contention that regulators must consider historical costs in setting utility rates. See FPC, 417 U.S. at 390-90 (acknowledging permissibility of multiple methods of calculating rate structures) and Duquesne, 488 U.S. at 316 ("The adoption of a single theory of valuation as a constitutional requirement would be inconsistent with the view of the Constitution this Court has taken since Hope Natural Gas ...."). Rather, the decisions cited by GTE require only that rates not be set at "confiscatory" levels, meaning that regulators must permit utilities to earn a rate of return on their investments that is commensurate with returns on investments in other enterprises having corresponding risks. See FPC and Duquesne. On this basis, the commission concludes that GTE's argument is without merit and declines to adopt the position that use of a costing standard which adopts a forward-looking rather than historical standard for cost determination violates the Takings Clause.

With regard to GTE's entitlement argument, the commission concludes that confiscation case law supports a position that public utilities, including LECs, are not guaranteed the right to recover the full historical costs of their investments. Los Angeles Dep't of Airports v. United States Dep't of Transp., 103 F.3d 1027, 1034 (D.C. Cir. 1997)(stating that computing actual cost does not always require using historical cost) and Illinois Bell Tel. Co. v. F.C.C., 988 F.2d 1254, 1262 (D.C. Cir. 1993)(noting that "FCC has no obligation ... to include in the rate base all actual costs for investments"). Moreover, neither PURA nor the FTA provide any textual basis for establishing an unmistakable right to recover all prudent historical costs. Rather, these statutes speak in much broader generalities about the right to "just and reasonable rates." PURA §53.003. As state and federal regulators continue to transition from traditional rate of return methods for setting maximum rates toward incentive regulations in the form of price caps, GTE's entitlement argument is further diminished. GTE has elected to be subject to incentive regulation under PURA Chapter 58. Under the terms of these provisions, an electing utility's rates, revenues, income, or return on investment are not subject to commission review. Prior to electing incentive regulation, GTE's rates were set using a historical rate of return methodology. This methodology determines rates based on a utility's actual costs. The telecommunications industry is a declining cost industry. For this reason, GTE will experience an increased rate of return on its investments during the period of incentive regulation. This factor, when coupled with the dollar for dollar recovery through the TUSF of any rate reductions that may occur upon implementation of the fund, suggests that GTE will fully recovery the costs associated with its provision of basic local telecommunications service. Consequently, the commission concludes that GTE's critique of the forward looking cost methodology is unjustified; GTE is fully recovering its historical costs through its current rates and to the extent that rate reductions occur upon implementation of the TUSF, these reductions will be recovered from the TUSF. These mechanisms ensure the recovery of an ILEC's historical investment. Therefore, the only practical effect of utilizing a forward looking cost methodology is to create an explicit cost recovery mechanism for universal service funding and remove implicit support for universal service.

In the event that the forward looking cost methodology does not accurately determine the appropriate cost recovery for LECs that have not elected into incentive regulation under PURA Chapter 58 and 59, the commission has established a mechanism through which carriers may obtain compensation for regulatory actions that result in an alleged taking. Specifically, §23.138, relating to Additional Financial Assistance (AFA), enables ILECs that are not regulated under PURA Chapter 58 and 59 and that need funds in addition to those received under §§23.133, 23.134, or 23.136, to request AFA support in PURA §§53.105, 53.151, or 53.306 proceedings.

Although the commission has considered GTE's concerns regarding the universal service plan, the commission notes that the goal of this rulemaking is specific to establishing a universal service fund for Texas and cannot address the rate issues raised by GTE. As a company electing regulation under Chapter 58, GTE must maintain a rate cap for basic services until the end of the election period. GTE may raise rates for discretionary and competitive services pursuant to the provisions of PURA Chapter 58. The commission acknowledges that revenues from non-basic services contribute to the cost of providing basic services. The commission notes GTE's concerns about the disparity in basic and non-basic rates between various ILECs, but, GTE's complaints cannot be addressed in this rulemaking because those rates were set in separate proceedings. The commission will establish benchmarks and calculate forward-looking economic costs for specific geographic areas that minimize the possibility of ETPs receiving greater support than is needed to make all supports explicit.

AT & T and MCI argued in support of the HM, recommending that the commission reject the BCPM. AT & T stated its belief that the HM is the superior model based on construction of the model itself, ease of modifying inputs, and accuracy of data. AT & T alleged that the HM meets the ten criteria required by the FCC for any cost study used to calculate federal universal service fund (FUSF) support.

MCI strongly urged the rejection of the BCPM. MCI indicated that the commission should reserve its decision regarding selection of a benchmark until the FCC has reviewed the cost model/study submissions. In its reply comments, MCI indicated that the commission should defer to the FCC's choice of a cost model. TCG also suggested that the commission delay choosing a cost model until the FCC has completed its investigation of proxy models. In its reply comments, TTA indicated that whatever the model chosen, its adoption should not be delayed, as MCI proposed, and it should reflect Texas-specific costs, such as ELCS, not mirror a federal cost model.

In its reply comments, GTE indicated that MCI erred in urging the commission to reject BCPM for state purposes if the FCC rejects it for federal support purposes. GTE argued that since the commission has made the election to submit its own cost models for the purpose of calculating intrastate support, it need not wait on any further action by the FCC. GTE stated that even if the FCC adopts a different model, that FCC model will not be used for either interstate or intrastate purposes in Texas in light of this commission's election. GTE further argued that the FCC's general model will be used in those instances where the state fails to present its own model or its model is found to be deficient. GTE remarked that under these circumstances the commission would then be free to proceed with its own model for intrastate purposes. GTE opined that the commission must choose the most appropriate costing model for Texas regardless of the ultimate decision of the FCC as regards its general model.

In its reply comments, SWBT stated that under no circumstances should the commission adopt use of the HM simply because the FCC may adopt the HM. In response to AT & T's argument that it is critical that the commission use a model that is consistent among jurisdictions for the application of the state federal universal funding mechanism, SWBT stated that while consistency is a worthy goal, it should not outweigh the commission's obligation to ensure adequate universal service support in Texas. SWBT stated that jurisdictional differences in costs which result in differing levels of USF's federal and state can be accommodated simply by crediting the LEC's state USF recovery by the net FUSF recovery.

In its reply comments, GTE stated that the HM is erroneous and riddled with conceptual flaws that render it unacceptable. GTE opined that the HM models an incomplete and futuristic network that could not provide universal service at this time or in the foreseeable future. GTE remarked that apart from its conceptual and methodological shortcomings, the HM has been shown to be an untrustworthy, result-oriented device designed to produce artificially low costs and prices. GTE argued that the HM is more inaccurate in its measure of universal service cost than the BCPM and unfit for use in determining costs for USF under the FCC's ten cost model criteria. GTE argued that the HM should be rejected for several reasons: it builds a network that could exist only once the local exchange market becomes effectively competitive, something that may not occur in five or ten years; it produces network investment, general support investment, network expenses, support expenses, and corporate expenses that are only about 40% to 50% of current GTE costs; structure sharing assumptions won't be attainable for at least three to five years; it fails to include enough plant to serve customers because of unrealistic assumptions about customer locations; it does not produce accurate line counts; and it woefully underestimates switching costs.

GTE, SWBT, and TTA suggested that the commission use an embedded cost methodology, but indicated a preference for BCPM in the event that the commission decided to use a forward looking economic cost model. If the commission must select a cost model to calculate universal support on an interim basis, GTE opined that BCPM is superior to the HM. SWBT concurred with GTE that the BCPM takes a much more reasonable approach to cost modeling than the HM. TTA also stated that BCPM is clearly the recommended choice, because it is based on a more reasonable approach to model construction, and employs more rational and reasonable assumptions throughout the process than HM. TTA attested that the BCPM is based on telecommunications engineering principles that would construct an operational network. TTA further recommended that Texas-specific input values be used in the BCPM in order to recognize the state's specific operating cost, geographic, demographic, and other characteristics. TTA advised that national average inputs should be used only in those instances where state specific values are not available.

Sprint argued that the commission should retain the BCPM as the model for use in Texas. Sprint observed that the BCPM is the most accurate, user-friendly and detailed model available. Sprint listed three key factors that allow the BCPM to provide superior and more accurate cost estimates than HM: (1) BCPM identifies which customers are served by which wire center; (2) BCPM locates customers in order to build the network; and (3) BCPM constructs a workable network. Sprint identified problems that the HM has with these three areas. Sprint noted that HM assigns all of the customers in a CBG to a single wire center, the problem is that many times, the customers in a CBG are served by several different wire centers. Sprint commented that HM uses clustering in CBGs with densities under 200 households per square mile, and assumes that 85% of the customers are located in towns on three-acre lots that are all adjacent to each other, although clustering is completely arbitrary and has no basis in reality. Sprint further commented that HM assumes that both CBGs and wire centers are square shaped, that the main feeders emanate from the wire center in either a north/south or east/west direction only and that sub-feeders split off at right angles and extend to individual CBGs. Sprint stated that no existing network is built this way, and no network that was actually constructed by an efficient provider would be built this way either. In its reply comments, Sprint restated its support of the BCPM and noted that SWBT, TTA, and GTE all recommended the BCPM if the commission chooses to use a forward-looking proxy cost model.

AT & T compared the HM and BCPM models in its reply comments and stated that Sprint advocated adopting a cost model (BCPM 2.0) which is untested and is still an unproven work in progress. In addition, in AT & T's opinion, many elements of BCPM 2.0 are invisible to the end users and would make it exceedingly difficult to determine the accuracy of the program's calculations. AT & T stated that the HM version 4.0 is open to public scrutiny by utilizing public data sources for its inputs. AT & T contended that all concerns expressed by Sprint about the HM have been addressed in HM version 5.0. In renewing its support for the HM, AT & T also said that regardless of which model is used, it is critical that proper and consistent inputs are established.

OPC opined that the BCPM remains fundamentally flawed, and does not, in its present state, produce reliable estimates of forward looking, efficient costs. OPC stated in its reply comments that the competitive model offered by the companies is one in which decisions on entry are made by taking only the revenues available on basic service into account. OPC declared that the incumbents seek to make basic service "profitable" on a stand alone basis, with 100% recovery of loop and other costs from basic services, while ignoring all of the revenues that can be earned on the sale of services that share the use of common facilities.

TEXALTEL did not state a preference for either model, but noted that if portability of the subsidy is done right, the level of the subsidy is somewhat self policing.

The commission agrees with MCI and TCG that it may be prudent to delay choosing a specific forward looking economic cost methodology since both BCPM and HM are undergoing revision. The updated versions of BCPM and HM provided in the next few months should address some of the specific concerns expressed by the parties. As part of the compliance proceeding, the commission will determine which forward looking economic cost methodology will be best for use in Texas and also determine the appropriate Texas-specific inputs. In that proceeding, the commission will consider the ten criteria specified in paragraph 250 of the Report and Order. The commission replaces the reference to BCPM in §23.133(e)(2)(A) with the term "forward-looking economic cost methodology."

TTA opined that a proxy cost model was not applicable to the small and rural ILECs, and should not be adopted for these companies.

The commission does not anticipate applying a forward looking economic cost methodology to determine TUSF support payments to any small or rural ILEC until the FCC adopts an order implementing new or amended FUSF rules for rural, insular, and high cost areas. At that time, as stated in §23.134(h), the commission shall initiate a project to investigate a mechanism by which ETPs receiving support pursuant to §23.134 would transition to receiving support pursuant to §23.133.

In proposed §23.133(e)(2)(A) the commission stated its intent to use the BCPM on no greater than a CBG level.

CU asserted that the CBG was too small a unit of analysis, and that it did not fairly represent the geographic deployment of network facilities or the areas used to market services. CU argued that use of CBGs would result in an overestimation of the need and a larger than necessary TUSF. Agreeing with CU, OPC recommended that the commission reconsider its choice of the CBG as the unit of analysis, and choose instead a larger unit such as the wire center or the exchange. OPC argued that the CBG does not represent a reasonable market segment for a new entrant, that the network architecture is not driven by the CBG, and that telecommunications services are not marketed at this level. OPC argued that using an excessively small unit of analysis like the CBG will create an unnecessarily large USF, since it eliminates the actual averaging of costs that inevitably goes on in a marketplace. Moreover, according to OPC, it will increase the role of joint and common costs since all costs outside the extremely small geographic area of the CBG must be considered joint and common between areas.

In its reply comments, SWBT declared that OPC showed a misunderstanding of the purpose of the rule when it argued that it is virtually impossible to deploy facilities, to advertise, and to offer service by CBGs. SWBT opined that CBGs are merely a mechanism for administering USF. SWBT argued that use of CBGs allows the identification in a model of high costs associated with actually deploying facilities in such a geographic area and allows the universal service mechanisms to encourage providers to actually bring competition to customers residing in rural high cost areas. SWBT stated that OPC's argument that the CBG analysis eliminates actual averaging of costs is a benefit, not a detriment, of the TUSF plan. SWBT opined that use of CBGs does not reduce the economies of scale and scope.

In its reply comments, GTE responded to OPC and CU, contending that their positions that the CBG is too small a geographic area are wholly without merit. GTE argued that OPC's subjective criteria for choosing the appropriate geographic area for universal service calculations, facilities deployment, and marketing activities confirm that CBGs or smaller areas would be preferable to wire centers for calculating costs for universal service purposes. GTE refuted OPC's argument that CBGs do not represent reasonable market segmentation for new entrants by stating that current experience indicates that new entrants are targeting clusters of consumers smaller than CBGs. GTE also took issue with OPC's statement that an excessively small unit of analysis will create an unnecessarily large universal service fund. GTE stated that the aggregation of customers into CBGs could not of itself ever overstate the fund requirement. GTE remarked that aggregation by CBGs does not eliminate the averaging of costs that occurs in the marketplace. GTE further argued that in the case of artificially suppressed prices the amount of suppression can only be calculated by deaveraging costs, if possible, down to the customer level. GTE found OPC's argument that CBGs increase the role of joint and common costs to be without merit. GTE responded that joint and common costs by definition cannot be directly segregated between services or geographic areas. GTE stated that the use of CBGs, wire centers, or the entire service territory will not change the pool of joint and common costs that must be borne by services. GTE urged the commission to adopt CBGs or smaller geographical areas for purposes of calculating the universal service requirement.

TEXALTEL observed that a proxy model was inevitable. TEXALTEL stated that since SWBT and GTE do not keep cost records on a CBG or even an exchange basis there is no means to ascertain actual costs in small geographic areas. TEXALTEL stated that a proxy model that produces a reasonable approximation of forward looking costs for SWBT's or GTE's study area should be used to determine CBG costs. TEXALTEL strongly supported the concept that costs must be determined by small geographic areas; otherwise, totally unacceptable aberrations will occur. TEXALTEL contended that if geographic areas are too large, they will have the effect of averaging high cost and low cost consumers and that competitive providers will seek out those consumers with high subsidies and low costs and leave the carriers of last resort (COLRs) with the consumers whose costs are much higher than subsidies.

In its reply comments, OPC disputed the incumbents' claim that the commission must only look to basic service plus universal service support on a very granular level of entry (the CBG) in order to meet the dictates of the FTA. OPC contended that potential entrants recognize the availability of revenues from the broad range of services as part of the fundamental decision to enter. OPC argued that the ability to market and achieve margins on the services which actually require the enhanced functionality of the modern network is a much firmer basis on which to build competition. OPC concluded that a firm that planned entry at the level of only basic service could never compete.

TEXALTEL professed that as a group of access charge payers and potential competitors, it appears that the higher the rural subsidies are, the better off its members are. TEXALTEL remarked that as long as access charges are reduced by the amount of the subsidies net costs to IXCs would be a wash. TEXALTEL admitted that the higher the rural subsidies, the better the chances that its members would have of serving rural areas. TEXALTEL stated that it would be bad public policy for subsidies to create a false economy where firms are competing for subsidies, not consumers and revenues. TEXALTEL encouraged the commission to start the process conservatively and make adjustments later as experience is gained.

The commission supports using a forward looking economic cost methodology on small geographic areas for the determination of TUSF support. The commission concludes that the use of small geographic areas allows for determination of high cost areas with the least amount of averaging, leading to a more accurate determination of the support amount. The commission also concludes that averaging costs over small geographic areas will lessen the ability of ETPs to selectively target relatively higher revenue/lower cost customers and receive THCUSP support. It is the commission's opinion that such targeting in areas that have average costs above the benchmark could leave the ILEC serving the lower revenue/higher cost customers. As stated previously, the forward looking economic cost methodologies are undergoing review and the extent and effect of the model changes is unknown at this time. Therefore, the commission in order to have flexibility in selecting a forward looking economic cost methodology, qualifies its statement that CBGs will be the geographic area of analysis in §23.133(e)(2)(A) with the phrase "or any other geographic area determined appropriate by the commission." In selecting a forward looking economic cost methodology, the commission shall address the question of whether to use wire centers, CBGs, or some other geographic area to model Texas costs in the compliance proceeding.

SWBT indicated that it will seek to be an ETP for the CBGs or portions thereof in wire centers it serves in Texas. SWBT stated that this identification ensures that the current advertising by SWBT is sufficient to meet the requirement of the commission's universal service rules and the FTA. SWBT also indicated that establishing CBGs as the basis of the THCUSP is not a simple process. SWBT stated that it will be expensive and time consuming for ILECs to perform the mapping that the rule will require because current customers and exchanges are not mapped to CBGs. SWBT argued that the cost is not justified and an allocation procedure should be adopted. If manual development is required, SWBT argued that the rule should provide for recovery of costs associated with the process.

SWBT continued its argument in its reply comments, claiming that in order to receive support for a line, an ETP will need to identify the CBG in which the customer is located. SWBT also stated that the CBG is a geographic area that has previously been totally unrelated to local exchange telephone business and consequently does not exist in telephone company records. SWBT reported that 2.2 million lines in SWBT, GTE and Sprint records are not identified to a CBG by commercially available matching software. SWBT listed six limitations to its ability to identify the CBG of each line: (1) 198 Texas counties have not completed rural county addressing; (2) commercial databases will not be updated until the postal conversion of rural county addressing is complete; (3) standardized Census Topologically Integrated Geographic Encoding and Referencing (TIGER) street number, street name, and city or latitude and longitude may not be available; (4) billing addresses may be different from served addresses; (5) with each new census, some CBGs will change their physical boundaries; and (6) LEC customer addresses must also match addresses used by the applicable E-911 agency. Considering these six limitations, SWBT argued that an allocation procedure is needed to assign the lines for which no CBG is identified. SWBT suggested that the procedure be based upon the identified lines by CBG compared to the BCPM projected lines within the CBG served by the ETP. SWBT asserted that to be eligible to utilize the allocation procedures, a LEC should be required to correctly identify at least 60% of the companies' TUSF eligible lines to a correct CBG. SWBT claimed that its allocation procedure appropriately spreads unidentified lines to the CBGs with the greatest deviation from the BCPM projected number of lines. SWBT recommended that the procedure be reviewed 18 months after implementation to determine any needed modifications.

In its reply comments, Sprint concurred with SWBT in its recommendation that ILECs should be able to recover the cost of mapping and identifying customers in a CBG. Sprint urged the commission to allow the recovery of reasonable expenses for implementation of TUSF on a CBG basis. Since the ILECs currently maintain the majority of the local exchange customer base, Sprint indicated that identifying customers into proper CBGs would best be accomplished by the ILECs. Sprint indicated its belief that if ILECs will be reimbursed for reasonable implementation costs that will be funded by other telecommunications providers, then other telecommunication providers must have access to customer CBG location information developed by the ILECs.

GTE also agreed with SWBT in its reply comments. GTE supported SWBT's comments regarding the difficulties of determining exact customer locations for purposes of populating CBGs. GTE urged the commission to adopt an allocation procedure to be implemented after a reasonable threshold of customers has been mapped. Alternatively, GTE supported SWBT's request for recovery from the fund for expenses incurred to fully map these customers.

The commission declines to make a decision at this time regarding the necessity of customer mapping and recovery of related costs through the TUSF. The commission notes that the ILECs do not currently maintain customer records on a CBG basis, but it is unclear how much, if any, mapping of actual customer locations by the ILECs will be necessary. The commission shall address these issues in the compliance proceeding. If, in that proceeding, the commission determines that customer mapping by ILECs is necessary, and that the ILECs should receive TUSF support for mapping customer locations, then all mapping information developed by the ILECs and paid for by the TUSF shall be made available to all ETPs.

Section 23.133(e)(3)(B) establishes the criteria to be considered in subsequent determinations in THCUSP base support.

SWBT indicated that it is unclear how growth patterns and income levels in low-density areas can be used for future determinations. SWBT stated that the intent of the language in §23.133(e)(3)(B) is unclear. SWBT opined that the actual relevant factors are the costs to provide the service and the revenues that can be expected to be obtained in these areas. TTA asserted that none of the criteria proposed in §23.133(e)(3)(B) that trigger future review of the benchmark and cost methodology were inputs to either the benchmark calculation or the cost methodology. TTA recommended replacing them with more appropriate triggers, such as the need to remove additional subsidies; changes in the federal cost methodology and benchmark; changes in the technology used in the cost model; changes in prices for inputs to the cost model; and changes in population centers or other demographics used in the cost model.

The commission declines to revise §23.133(e)(3)(B) as suggested by SWBT. These criteria will help determine whether the commission's TUSF plan is successful in achieving its USF goals. The commission notes TTA's triggers but also declines to replace the criteria with TTA's suggestions because the rules as drafted contain sufficient review provisions. Section 23.133(e)(3)(A)(ii) provides for commission review of the forward looking economic cost methodology, the benchmark levels, and/or the base support amount on its own motion at any time. Pursuant to §23.133(g) the commission shall initiate a project to review the THCUSP within 90 days of the FCC's adoption of an order implementing new or amended federal USF support rules fur rural, insular and high cost areas.

Section 23.133(e)(4) establishes the calculation of the amount of THCUSP support payments to individual ETPs.

Due to modifications made to §23.147(d)(2)(A)(i), the commission revises §23.133(e)(4)(A).

Section 23.133(e)(4)(B) provides for an adjustment to TUSF support payments for federal USF support.

MCI suggested that the commission should clarify the definition of the FUSF support offset in §23.133(e)(4)(B) or defer implementation of the THCUSP until January 1, 1999. TTA also recommended revising §23.133(e)(4)(B) to clarify that FUSF funds which are either targeted to specific programs such as Lifeline, Tel-Assistance, and education discounts, or provided as an offset to interstate costs, do not reduce the TUSF. In its reply comments, Sprint concurred with TTA. Sprint indicated its support of the reduction of TUSF support by the amount received from the FUSF. Sprint argued that since federal Lifeline and educational discount programs are in effect special discounts to services other than BLTS then it is appropriate not to reduce TUSF support by those amounts.

The commission clarifies that the THCUSP support will be decreased by the amount of federal high cost assistance received by the ETP and revises §23.133(e)(4)(B) to reflect that clarification.

Section 23.133(e)(4)(C) contains a provision for the sharing of THCUSP support payments between an ETP providing service using UNEs and the underlying carrier. The commission sought specific comment on three hypothetical examples: (a) If the forward looking economic cost ($80) is above the benchmark ($75), and the benchmark is above the sum of UNE prices ($60), how, if at all, should the support amount (the difference between the forward looking economic price and the benchmark) be divided? (b) If the forward looking economic cost ($90) is above the sum of UNE prices ($85), and the sum of UNE prices is above the benchmark ($75), how, if at all, should the support amount (the difference between the forward looking economic cost and the benchmark) be divided? (c) If the sum of UNE prices ($90) is above the forward looking economic cost ($80) and the forward looking economic cost is above the benchmark ($75), how, if at all, should the support amount (the difference between the forward looking economic cost and the benchmark) be divided?

AT & T, GTE, and SWBT provided specific responses to the three hypothetical examples in the question posed by the commission. In response to (a), AT & T indicated that the CLEC would receive $5.00, GTE and SWBT answered that the ILEC would receive $5.00; in response to (b), all three companies indicated that the ILEC would receive $5.00 and the CLEC would receive $10; in response to (c), AT & T indicated that the ILEC would receive $10 while GTE and SWBT postulated that the CLEC would receive $5.00.

AT & T suggested modifying §23.133(e)(4)(C) because it could be interpreted to mean that the forward-looking economic costs equal the sum of the UNE rates and the THCUSP. AT & T indicated that this was a potential problem since UNE costs may be different because they are developed through arbitrations or other proceedings on a statewide or zone basis. Another problem, according to AT & T, was that the rule could lead to discriminatory treatment between ILECs and CLECs. AT & T opined that if the USF cost was greater than UNE, the ILEC could still receive an additional subsidy. If the UNE was greater than USF cost, or a CLEC utilizes part of its facilities and has additional individual costs, AT & T speculated that then, the entrant was disadvantaged because there was no additional subsidy for it. AT & T proposed that the solution was to only evaluate the differential between USF cost and the benchmark price, and award the subsidy to the carrier providing the service to the customer. AT & T argued that only the carrier who wins the customer should get the support. AT & T declared that the carrier providing the underlying UNE should not get the subsidy because it will generally recover its costs if the UNEs are properly priced.

In its reply comments, SWBT asserted that AT & T was wrong in its argument that the rule results in discriminatory treatment between the ILECs and CLECs because no additional subsidy is provided to a CLEC in cases where that new entrant provides services using partly its own facilities and partly UNEs. SWBT responded that no adjustment needs to be made to recognize this situation because the CLEC can select the lowest cost means of providing the service, either through UNEs or its own facilities. SWBT advised the commission to reject AT & T's suggestion that all of the subsidy be awarded to the carrier that provides the service because this may result in a windfall to carriers such as AT & T that do not intend to build facilities. SWBT disagreed with AT & T's argument that an ILEC's receipt of the UNE price means that it is fully compensated. SWBT argued that it was not recovering its actual costs but rather a modified hypothetical cost of service because for USF purposes the benchmark cost was determined on a different basis than is true for UNEs for which the costs are determined at a much more aggregated level. SWBT argued that because of these differences the USF cost in an area will likely be higher than the UNE price and the ILEC will not be properly compensated if the average UNE price is all that it can receive. SWBT further argued that there is no cost or any other basis for giving AT & T or other CLECs the difference between the USF cost and the UNE price, since they are not incurring costs the support is designed to recover. SWBT stated that if the UNE price is below the USF area cost, the differential in the UNE price and the USF cost, if above the benchmark, should flow to the underlying facilities provider. SWBT stated that this arrangement of support sharing creates no barrier to entry because UNE purchasers will receive up to the UNE cost all the support above the benchmark and this will be on an equivalent footing with any other provider of local service in that area.

SWBT commented that the examples in the questions assume that the sum of UNE prices should be used to calculate the retail provider's cost. For that process to work, SWBT suggested that the TUSF administrator calculate the aggregate or sum of the UNE costs per line for each UNE provider in each universal service area, using the approved UNE rates and current quantities of the UNE provider's facilities in the USF area.

AT & T, GTE and SWBT observed that the three examples did not consider a situation in which the CLEC uses a combination of UNEs and its own facilities to provide service. AT & T urged that when a CLEC uses a combination of UNEs and its own facilities, the CLEC should receive the full subsidy because the ILEC will recover its costs via UNEs. AT & T indicated that the proposed provision should only be applied where UNEs are used exclusively to provide service.

GTE indicated that the rule must be expanded to address situations where only a portion of what is provisioned is supplied through the purchase of UNEs. GTE reiterated its concern that cost-based pricing may run counter to the goals of universal service and must be appropriately addressed in any universal service plan. GTE further asserted that whether or not a sharing mechanism was adopted, the entire support lost due to the purchasing of UNEs must be recovered.

SWBT also commented that the commission should recognize the combined use of owned facilities and purchase of UNEs to provide end to end service by the retail provider. SWBT proposed a method that the TUSF administrator could use to calculate the UNE purchasers' costs when providing service through a combination of its own facilities and UNEs. SWBT also indicated that the administrator must determine the amount of FUSF support received and deduct it from the state support provided to the eligible carrier. As an alternative to what SWBT referred to as a complex and burdensome process, SWBT recommended that none of the support be paid to the UNE-using provider and instead that all the support be provided to the underlying carrier providing the facility utilized to provide service to the customer. SWBT stated that this approach was practically and theoretically correct because the UNE-using provider will receive (in high cost areas) a rate that should be lower than the commission's model universal service area cost result. The UNE rate is developed based on and averaged across a much larger area that encompasses not only high cost, but also many lower cost areas.

In its reply comments, MCI suggested that the commission should reject SWBT's modifications to the UNE adjustment and SWBT's alternative proposal for the ILEC to receive all of the TUSF support to avoid administrative complexity and the windfall that such an adjustment would provide to ILECs. MCI stated that if the commission finds it appropriate to provide more universal service support in CBGs where the forward-looking economic cost exceeds the UNE prices, it should also provide a reduction (or credit) for UNE prices in those CBGs where the UNE prices exceed the forward-looking economic costs. MCI found SWBT's "realistic alternative" to allocation of support for a carrier that is providing service via UNEs flawed for two reasons. First, MCI stated that because the FCC and the commission have already found that the provision of service via UNEs meets the statutory criteria for providing service over one's own facilities, the carrier is already eligible for USF support. Secondly, MCI commented that SWBT's assumption that a carrier obtaining UNEs is receiving an economic benefit is inaccurate because UNEs are designed to recover costs. So the carrier receiving the UNEs is being compensated for the costs of providing the service and the one paying the UNEs needs the USF support to provide market-based rates. MCI contended that SWBT's alternative should be rejected.

MCI, OPC, and Sprint did not provide answers to the commission's hypothetical, but offered comments on how to solve the problem.

MCI argued that this exception to the rule should be eliminated or at least include FUSF support in the adjustment to UNEs to prevent double recovery. MCI also urged deletion of this UNE adjustment because the commission has established statewide average prices for UNEs.

OPC asserted that "the individual examples are less important than the principles," and declared the principles to be: that the forward looking economic costs should be equal to the sum of the unbundled network elements, and that the subsidy should go to the entity bearing the responsibility for maintaining the underlying facilities.

Sprint suggested that UNE pricing be developed using the same geographic areas that are used for TUSF purposes. Sprint stated in its reply comments that it generally agreed with AT & T and MCI that the subsidy should be available to the telecommunications carrier that is providing service to the customer through either its own facilities or through a combination of its own facilities and purchase of UNEs. Sprint opined that the only reasonable solution to the hypothetical examples is to work towards the use of similar geographic boundaries and cost models when determining both UNEs and TUSF costs. Sprint also recommended that if the commission does not want to calculate UNEs on a CBG or lower basis, pricing them on a zone basis is much more advantageous than on a state-wide basis. Sprint argued that pricing UNEs on a zone basis in part, alleviates the potential wide disparities that could exist between the BCPM cost and UNEs priced on a statewide average basis. Sprint recommended that the commission strive for consistency in geographic areas and the use of a costing model for determining UNE prices and TUSF costs.

Regarding Sprint's suggestion that UNE pricing be developed using the same geographic areas that are used for TUSF purposes, SWBT responded in its reply comments that it is a theoretically good argument, but practically speaking, it cannot be followed. SWBT opined that UNE pricing cannot be redone in a more disaggregated fashion to be consistent with the universal service plan. SWBT suggested that this issue be addressed subsequently when the commission reconsiders this plan in three years.

In its reply comments, TTA opined that actual cost was the only choice that allowed UNE rates and USF support to be reconciled and that met the requirements of FTA §252(d). If actual cost is not used, TTA recommended using the model proposed by SWBT and GTE, which restricts the subsidy to carriers having COLR responsibility.

The commission agrees with AT & T, MCI, and Sprint that the carrier providing retail service to the end user should receive the THCUSP support, except where the service is provided to the end user solely through the use of purchased UNEs. The commission established UNE rates through separate proceedings and for different purposes. The commission recognizes that because the support amounts for the THCUSP will be determined in a different proceeding from the UNE pricing proceeding, that there could be an opportunity for inappropriate gaming between the results of the two different proceedings. Therefore, the commission revises subsection (e)(4)(C) to give the commission the discretion to allocate the support amount, if any, for an eligible line provided using solely purchased UNEs between the ETP providing service to the end user and the ETP providing the UNEs.

AT & T and MCI noted that SWBT, the primary contributor to the intraLATA toll pool, would experience a revenue windfall upon elimination of the toll pool. To prevent such an occurrence, both AT & T and MCI suggested that §23.133 be revised to require ILECs who are net contributors to the intraLATA toll pool to reduce either their access rates or their TUSF support amount by an amount equal to what was being paid into the intraLATA toll pool before dissolution of the toll pool.

Although the commission declines to revise the rule as suggested by AT & T and MCI, the commission recognizes that ILECs, such as SWBT, may benefit financially upon the dissolution of the intraLATA toll pool. In order to prevent such an occurrence, the commission clarifies that concurrent with the dissolution of the toll pool and implementation of the small and rural ILEC plan, an ILEC that is a net contributor to the intraLATA toll pool must reduce rates as determined appropriate by the commission by an amount equal to what was paid into the intraLATA toll pool during the latest 12 month period.

Section 23.133(f) establishes information that ETPs shall report to the TUSF administrator or the commission.

SWBT argued that the reporting requirement in §23.133(f)(2)(A) should correspond to the lines being supported. MCI suggested modifying §23.133(f)(2)(A) and §23.134(g)(2) to specifically exclude access lines associated with service resale from line counts that ETPs report to the TUSF administrator. Replying to MCI's request in its reply comments, TTA recommended clarifying amendments for §23.133(f)(2)(A) and §23.134(g)(2).

The commission agrees that clarification is necessary in reference to the number of lines served that ETPs shall report pursuant to §23.133(f)(2)(A). ETPs shall report the following: the total number of access lines on their network; the total number of access lines sold as UNEs; the total number of access lines sold as total service resale; the total number of access lines serving end use customers; and the total number of eligible lines for which the ETP seeks TUSF support. The commission modifies §23.133(f)(2)(A) to reflect this requirement. As discussed above, the commission has added the definition of eligible line to subsection (b).

Section 23.133(f)(3) requires ETPs to report annually to the TUSF administrator that they are qualified to participate in the THCUSP.

MCI said the commission should eliminate the requirement to file annual reports in §23.133(f)(3) and §23.134(g)(3). MCI opined that the less paper the administrator must handle, the lower the cost to the public.

The commission declines to eliminate this requirement. An annual filing is a proactive mechanism that will help the TUSF administrator manage the fund efficiently.

Section 23.134 establishes guidelines for financial assistance to ETPs that provide service in the study areas of rural incumbent ILECs' and small ILECs' areas in the state.

With regard to implementation of the rule, TTA, TSTCI, and JSI emphasized that there must be no disruption to small and rural ILECs' existing revenue streams. In addition, TSTCI and JSI stated that §23.134 should be revised to directly tie the implementation of USF support to the dissolution of the toll pool and the implementation of intraLATA equal access for the small companies. TSTCI and JSI explained that under the approved procedures for the toll pool, an ILEC that receives toll pool settlements must exit the toll pool upon implementation of intraLATA dialing parity. According to TSTCI, this will result in the ILECs losing all pool revenues in excess of toll revenues billed if the ILEC continues to be a toll provider. TSTCI and JSI argued that if TUSF support is not immediately available, this event may significantly harm those small and rural ILECs that must convert to intraLATA equal access prior to the elimination of the toll pool.

TTA suggested that replacement universal service funding be made on an interim basis effective July 1, 1998. TTA stated that an interim mechanism would ensure that any loss of revenue resulting from the elimination of the toll poll, intraLATA dialing parity, and high cost assistance funding (HCAF) is concurrently replaced. In support of its position, TTA explained that small and rural ILECs would not be able to provide data to support final TUSF funding in time for review and approval by July 1, 1998. In addition, TTA stated that the access and toll rate reduction under the THCUSP may not by known by July 1, 1998, and that the small and rural ILECs must implement intraLATA toll tariffs by this date.

The commission declines to revise §23.134 to directly tie dissolution of the toll pool to the implementation of the TUSF. In order to ensure no interruption in support flows, the dissolution of the toll pool will coincide with the implementation of the TUSF. The commission is also not persuaded that replacement universal service funding should be made available on an interim basis effective July 1, 1998. Implementation of the new TUSF is scheduled to occur during the second quarter of 1998. Implementation of the TUSF during this time period will ensure that small and rural ILECs experience a revenue neutral transition from the existing support structures to the new support mechanisms. If, however, a small or rural ILEC believes that universal service support recovery is required prior to the implementation date of §23.134, the small/rural ILEC may seek recovery of additional universal service support under PURA §56.025. Moreover, in order to avoid disruption in the cash flow small and rural ILECs receive and to provide funding for the small and rural companies on the date of the TUSF implementation, the commission will allow ETPs to file interim cost study data, subject to a year-end true-up process. ETPs receiving support pursuant to §23.134 shall file with the commission final cost studies based on test year audited accounting data upon final review of these cost studies by the Texas Exchange Carrier Association (TECA).

TSTCI also urged the commission to streamline the TUSF support proceeding in the manner provided in §23.94, relating to Small Local Carrier Regulatory Flexibility. TSTCI stated that having more than one proceeding to establish TUSF funding would make the TUSF transition complex and expensive for the majority of small companies.

The commission believes that the procedural process for implementing the TUSF is sufficiently streamlined and is not persuaded that all aspects of the TUSF should be implemented pursuant to a single proceeding. The information required to establish the amount of TUSF support for small and rural ILECs, to implement PURA §56.025, and to establish federal eligible telecommunications carrier and state ETP status will be the same regardless of whether there is a single or multiple proceedings. The commission is concerned, however, that a single proceeding will result in an overly complex and unwieldy process. For these reasons, the commission will establish concurrent proceedings to implement all aspects of the TUSF. The commission believes that concurrent proceedings will minimize confusion and ensure that the proceedings remain manageable and cost effective.

Section 23.134(b) sets forth the definitions for terms used in the small and rural ILEC plan.

TTA commented that the definition of "test year" for the small and rural ILEC plan should be modified to enable LECs having a fiscal year end other than calendar year end to use their 1997 fiscal year for test year purposes. TTA stated that this modification will ensure that small and rural ILECs do not experience unnecessary increases in audit costs that may be associated with implementation of the new TUSF.

The commission agrees with TTA's suggested revision and makes the necessary change to §23.134(b)(5) to enable small and rural ILECs having a fiscal year end other than calendar year end to use their 1997 fiscal year for test year purposes.

TTA also commented that §23.134(b) should be revised to include definitions for "access lines" and "average number of access lines served." TTA argued that the absence of a definition for "access line," and of a methodology for counting trunks, integrated services digital network (ISDN) lines, and other types of lines, would lead to ambiguous interpretations of these terms. Specifically, TTA recommended that the definition of "access lines" be tied to those lines on which the federal SLC charge is assessed. MCI commented that §23.134 should be revised to clarify that the type of access lines for which support will be provided excludes access lines associated with service resale.

In its reply comments, AT & T opposed TTA's proposed definition of "access lines." AT & T stated that the TTA definition of "access lines" was overbroad and that adoption of this definition would increase the size of the fund unnecessarily.

Although ACSEC took no position on TTA's proposed definition for "access lines," ACSEC commented that an ACSEC rule (1 TAC §255.4) ties the billing of ACSEC's 9-1-1 emergency service fee to the billing of a federal SLC. ACSEC also stated that it had recently re-evaluated the access line definition it has adopted and discovered that telephone companies may bill federal SLCs differently for the same service. For example, ACSEC noted that SWBT bills federal SLCs per channel for ISDN lines, while GTE bills federal SLCs per BRI (Basic Rate Interface) and PRI (Primary Rate Interface) line. ACSEC also commented that marketing efforts and billing practices by both ILECs and competitive providers raise issues of whether a federal SLC is applicable to a line or service.

The commission is not convinced that the absence of a definition for the term "access line" in §23.134(b) creates ambiguity within the rule. It is the commission's intent that for purposes of calculating the per line support under the small and rural ILEC plan, all eligible lines served will be included in the line count used to determine the support per line. The commission modifies subsection (b) based on these comments. The commission also clarifies that an eligible line is a residential or single-line business line that an ETP serves using its own facilities, purchase of UNEs, or a combination of its own facilities and purchase of UNEs. The commission adds this definition of eligible line as §23.134(b)(1) and changes references to "access line" throughout §23.134 to "eligible line." In addition, the commission clarifies that the ETP providing service to an end user through total service resale will not receive support for that line. Rather, the underlying ETP will receive the support if such line is an eligible line.

Section 23.134(e) sets forth the monthly per-line support calculation to be used for each small or rural ILEC study area. OPC stated that it preferred a total amount of support rather than a per-line amount of support. OPC explained that it was concerned that a per-line support amount would result in an over collection of revenues as a result of demand stimulation and line growth. In reply comments, TSTCI stated that OPC's method of assigning a total amount of support would result in a significant reduction in USF support per access line over time for small and rural ILECs.

The commission concludes that support for small/rural ILECs should be based on a per-line amount rather than a total dollar amount as suggested by OPC. The commission is not persuaded that a per-line support amount will result in an over collection of revenues as a result of demand stimulation and line growth. Rather, the commission is convinced that a per-line basis of support appropriately recognizes that the number of subscribers served by small/rural ILECs may increase and that this would result in a corresponding increase in costs. The commission believes that small and rural ILECs should receive additional support at the same amount per-line as the number of subscribers increase. To provide otherwise would potentially jeopardize a small/rural ILEC's ability to provide supported services in non-competitive, high cost areas of the state. No change to §23.134(e) was made based on this comment.

Section 23.134(e)(1)(A) sets forth the manner in which lost toll pool revenues will be recovered through the Small and Rural ILEC Universal Service Plan.

SWBT commented that the toll pool support calculation in subsection (e)(1)(A) should be "net of access", but offered no justification for its position. TTA recommended language that would revise subsection (e)(1)(A) to include funding for ILECs that become toll providers upon dissolution of the toll pool. Specifically, TTA stated that the toll pool calculation must include funding to reflect any net change in the access charges billed and received by LECs that become toll providers. In its reply comments, MCI stated that TTA's proposed revision was inconsistent with PURA §56.025. MCI argued that PURA §56.025 only authorizes recovery of the reasonably projected reduction in contribution from intraLATA toll service from either the universal service fund or an increase in rates.

The commission declines to revise §23.134(e)(1)(A) in the manner suggested by TTA. The intent of subsection (e)(1)(A) is twofold. First, subsection (e)(1)(A) seeks to provide support to small and rural ILECs in a manner that is not vastly different from the support small and rural ILECs currently receive. Secondly, subsection (e)(1)(A) seeks to encourage small/rural ILECs to operate efficiently by freezing the level of support based on a test year per-line amount. However, the commission believes that it will be necessary under subsection (e)(1)(A) to account for the monetary effects associated with the payment and receipt of terminating access charges in a post-pooling environment. In addition, the commission believes that the revenue impact associated with a small or rural ILEC's decision to provide toll services upon implementation of intraLATA dialing parity can be appropriately considered in a proceeding under §23.136(b)(3).

TTA, TSTCI, and JSI also noted that a majority of the small companies intend to become access providers upon dissolution of the intraLATA toll pool, and that, having made that election, they would implement intraLATA equal access when TUSF funding is implemented. For this reason, TSTCI and JSI also suggested that subsection (e)(1)(A) be revised to allow a small or rural ILEC to elect to be either a primary carrier (toll provider) or secondary carrier (access provider) at the rule's effective date, and to calculate its TUSF requirement based on this option. TSTCI and JSI reasoned that this type of provision would enable an ETP participating in the small and rural ILEC plan to receive USF support for its decision to exit the intraLATA toll market and become a pure access provider. AT & T and MCI strongly opposed TTA's suggestion that the toll pool calculation set forth in subsection (e)(1)(A) should include funding for ILECs that will become toll providers.

The commission declines to revise §23.134(e)(1)(A) as proposed by TTA, TSTCI, and JSI. Although the commission is aware that small companies may chose to exit the intraLATA toll market upon the implementation on intraLATA equal access, subsection (e)(1)(A) is not the mechanism through which support in excess of that currently received through the toll pool may be recovered. As stated previously, subsection (e)(1)(A) seeks to provide support to small and rural ILECs in a manner that is not vastly different from the support small and rural ILECs currently receive. In contrast, §23.136 authorizes recovery of the reasonably projected reduction in contribution from intraLATA toll service from either the universal service fund or an increase in rates. Therefore, the compensation issues associated with the payment and receipt of terminating intraLATA access charges resulting from a small ILEC exiting the toll market are most appropriately addressed in a proceeding initiated pursuant to §23.136(b)(3).

Section 23.134(e)(1)(B) sets forth the manner in which access/toll reductions for small and rural ILECs may be recovered through the universal service fund. If, as a result of the implementation of §23.133, the large ILECs reduce toll and/or access rates, the small and rural ILECs may match the reduction and receive TUSF support for the reduction.

OPC expressed concern about the increased demands that would be placed on the universal service funds if small companies match the rate reductions of a large ILEC. Both TTA and TSTCI noted that although (e)(1)(B) enables small and rural ILECs to recover universal service support for reductions in access/toll rates, the rule limits these reductions to a mirroring of the access/toll rate reductions of a large ILEC, subject to §23.133. TSTCI asserted that this limitation deprives small companies of the flexibility to set their own access rates in the new competitive environment. TSTCI also argued that the access rate reductions that will be implemented by the large ILECs is unknown and that these rates may not provide sufficient revenues to the small company access providers. In order to address their concerns, TTA and TSTCI suggested that subsection (e)(1)(B) be revised to provide small and rural ILECs the flexibility to implement access and toll rate reductions to a level "no lower than" the rates of one of large LECs. In support of this proposal, TTA stated that it was unclear whether the access and toll rate reductions of the large LECs would be known by July 1, 1998. TTA also argued that the rule should provide greater flexibility with respect to the level to which toll and access rates could be reduced.

SWBT commented that subsection (e)(1)(B) should be revised to require small and rural ILECs who exchange traffic with SWBT to the reduce their access rates to the revised SWBT level or to the same rate as that of the large ILECs to which traffic is exchanged. SWBT argued that this type of reduction would ensure that transport and termination of calls by both parties is handled in a manner consistent with reciprocal rates charged to other local service providers and rates charged to interexchange carriers.

In reply comments, TSTCI and TTA opposed SWBT's proposal to limit small and rural ILECs to charging SWBT's access rates or to the same rate as the large ILECs to which traffic is exchanged. TSTCI argued that this proposal was unreasonably restrictive on the small ILECs and that greater flexibility on access rates was needed under the rule. TTA stated that the rationale underlying SWBT's proposal was flawed and that access rate differences among carriers had not caused any difficulty in the termination of interexchange traffic.

Although the commission disagrees with TTA's suggestion that §23.134(e)(1)(B) prevents small companies from flexibly setting their own access rates in the new competitive environment, the commission believes that it may be appropriate at the time of the compliance proceedings to consider whether small companies may recover additional universal service support for rate reductions to match the revised carrier common line (CCL) charge, residual interconnection charge (RIC) and/or intraLATA toll rate levels of one of the ILECs receiving support under §23.133. Accordingly, the commission modifies subsection (e)(1)(B) to give the commission flexibility to reach a determination on this issue during the compliance proceedings.

TCG strongly objected to §23.134(e)(1) and (e)(2) on the basis that these provisions allow an ILEC to receive "in perpetuity" universal service support based on embedded cost rather than economic cost. In response to this position, TTA asserted that subsection (e)(1)-(2) were temporary mechanisms that would remain in place only until an appropriate cost model for small and rural ILECs was adopted by the FCC.

With regard to the temporary nature of the provisions in §23.134(e)(1)-(2), the commission agrees with the statements of TTA. The commission is convinced that §23.134(h) ensures that small and rural ILECs will not, in perpetuity, receive universal service support based on historical costs. Pursuant to subsection (h), the commission will, upon adoption of an FCC order implementing a new or revised universal service plan for small and rural ILECs, initiate a project to investigate a mechanism by which small and rural ILECs will transition from the small and rural ILEC plan to a mechanism that calculates support based on a proxy model. Accordingly, no change to subsection (e)(1)-(2) has been made based on TCG's comments.

Section 23.134(h) provides for commission review of the small and rural ILEC plan upon the implementation of a federal universal service support mechanism. TTA commented that subsection (h) presumes that the THCUSP plan is the appropriate support mechanism to which small and rural ILECs should transition. TTA stated that the cost methodology utilized by the THCUSP may not be appropriate for small and rural ILECs and that the rule should not mandate use of a particular cost methodology designed for large LECs. To address this concern, TTA recommended language modifying subsection (h).

Although the commission is sensitive to the concerns expressed by TTA, the commission declines to modify §23.134(h) of the rule. The commission believes that upon adoption of new or amended federal universal service support rules for rural and high cost areas it is necessary to investigate a mechanism by which ETPs receiving support pursuant to this section would transition to a mechanism which utilizes a forward looking cost methodology in calculating the level of universal service support a carrier is entitled to receive. The commission disagrees with TTA's assertion that the rule presumes that the cost methodology utilized by the THCUSP for large ILECs is necessarily the appropriate forward looking cost methodology to which small and rural ILECs will transition. The commission recognizes that any transition mechanism must facilitate entry of small and rural ILECs into the competitive telecommunications market and at the same time take into consideration the unique characteristics of small and rural ILECs. Moreover, the commission is aware that a forward looking cost methodology for small and rural ILECs should be able to predict small/rural carriers' forward looking economic cost with sufficient accuracy to ensure that carriers serving high cost rural areas could continue to provide supported services at reasonable rates.

TSTCI also recommended that §23.134 be revised to allow HCAF and the provision in §23.53(d), relating to High Cost Assistance (HCA), to be rolled into TUSF support. In its reply comments, however, TSTCI withdrew its recommendation that §23.134 explicitly state that existing HCAF will roll over to USF support, and concurred instead with TTA's recommendation that §23.136 be used for that purpose.

The commission makes no change to the rule based on this comment.

Section 23.134(g) sets forth the reporting requirements for participation in the small and rural ILEC plan.

MCI commented that the requirement contained in subsection (g)(3) that ETPs file annual reports was unnecessary and should be deleted.

The commission, however, is not persuaded that an ETP's report of its access line count sufficiently ensures that the ETP continues to provide the supported services and satisfies the remaining criteria for receipt of TUSF support. In addition, the commission is convinced that the annual reporting requirements are a reasonable means of ensuring that ETPs remain in compliance with the certification requirements and that such filings will not impose undue administrative costs on either the ETP or the administrator. The commission makes no change to §23.134(g) based on this comment.

Section 23.136 implements the provisions of PURA §56.025 which provide for universal service funding in the event of certain identified events occurring after September 1, 1995.

MCI and TCG urged the commission to withdraw §23.136 and all other rules that implement PURA §56.025, on the grounds that these provisions have been federally preempted. MCI maintained that the provisions of §23.136 establish, under the guise of universal service, a revenue neutral support mechanism in a manner that is inconsistent with the federal requirements for state universal service programs. MCI also asserted that PURA §56.025 violated the FTA on the grounds that it was not competitively neutral. Specifically, MCI argued that the Texas statute granted ILECs an unfair advantage over other providers because only ILECs are eligible to receive universal service support under PURA §56.025. In support of its position, MCI cited a Kansas Court of Appeals decision, Citizen's Util. Ratepayer Bd. v. Kansas Corp. Comm'n, 1997 Kan. App. LEXIS 127, *5 (1997), which held that universal service programs designed to protect the revenues of ILECs without regard to economic costs are preempted by FTA §254. MCI also argued that PURA §56.025 is not needed to accomplish the goal of universal service in Texas, because the programs implemented through PURA §56.021 provide the necessary tools to ensure that all residents in the state have access to basic local telecommunications services at reasonable rates. AT & T supported the position of MCI and stated that the purpose of USF was not revenue replacement, but rather the assurance of quality telecommunications services at a reasonable cost.

In its reply comments, SWBT and Sprint disagreed with the arguments presented by MCI. SWBT challenged MCI's assertion that FTA §254 preempted the provisions of PURA §56.025, and thus §23.136, on the basis that if Congress had intended to preempt state law via the FTA, it would have expressly done so. Sprint argued that the FTA neither endorses nor prohibits revenue neutrality and noted that the FCC has, on an interim basis, established a revenue neutral USF. SWBT and Sprint also pointed out that at the outset of the universal service plan, it is appropriate for an ILEC to be revenue-neutral so long as there is not a continuing guarantee or protection of ILEC revenues from competition. SWBT cited PURA §58.062 in support of its position that any reduction in access charges must be accomplished in a revenue neutral manner. Sprint stated that revenue neutrality upon implementation of the universal service fund ensures that there are no net winners or net losers as a result of fund implementation and that revenue neutrality at the outset does not guarantee revenues to an ILEC in the face of competition.

SWBT and Sprint also addressed MCI's references to the recent Kansas Court of Appeals decision concerning universal service. SWBT and Sprint emphasized that the commission should give little weight to the Kansas decision cited by MCI because a Petition for Review of the decision has been filed and granted by the Kansas Supreme Court. In addition, SWBT argued that the Kansas decision was not applicable because the TUSF does not protect the revenues of ILECs, but rather reduces the implicit support in access and toll with an explicit and cost-based universal service plan. SWBT and Sprint also argued that the Kansas decision was not persuasive because the Kansas Universal Service Fund (KUSF) was not formulated in the same manner as the TUSF. Sprint reasoned that unlike the Texas plan, which determines the amount of the access reduction by the amount of TUSF support received, the size of the Kansas fund was dictated by the amount of the access reductions made by the ILECs. SWBT and Sprint also pointed out that the KUSF was not developed using a cost study component which is an inherent feature of the TUSF plan. In addition, SWBT and Sprint maintained that the TUSF plan does not violate FCC requirement of competitive neutrality, because TUSF payments under the plan are equally available to new entrants who meet the requirements of the Texas plan.

In its reply comments, GTE referenced PURA §55.065 in responding to the arguments raised by MCI and TCG. The commission assumes that GTE intended to reference PURA §56.025 in its remarks and has summarized GTE's comments accordingly. In its reply comments, GTE strongly objected to MCI's and TCG's proposal that the commission withdraw §23.136. Specifically, GTE objected to the federal preemption and revenue neutrality arguments MCI raised in support of its position to withdraw §23.136. GTE argued that MCI had erred in its assertion that PURA §56.025 violated the FTA and the FCC's Order on universal service. GTE explained that neither MCI nor the Kansas Court of Appeals provided any indication as to what language in the FTA prohibits a state from implementing a universal service fund plan that has a revenue neutral component. In addition, GTE challenged MCI's assertion that the provisions of PURA §56.025 were not competitively neutral. GTE argued that PURA §56.025 does not disadvantage non- ILECs because existing implicit subsidies only impact those companies that have historically funded universal service. GTE also challenged MCI's assertion that PURA §56.025 violates the competitive neutrality provisions of PURA §51.001(c)(1). GTE stated that PURA must be construed as a whole and that the Legislature would not enact universal service provisions that violate another section of the statute. GTE also argued that the two PURA provisions evidenced a belief on the part of the Legislature that PURA §56.025(b) was not anti-competitive. In addition, GTE asserted that PURA §56.025 does not conflict with FTA §254(k), which relates to the pricing of services eligible for universal service. GTE stated that it was unclear how FTA §254(k) bore any relation to the requirements set forth in PURA §56.025. Finally, GTE emphasized that if MCI's position is adopted and ILECs are prohibited from recovering lost revenues through the TUSF, the companies will have no alternative but to increase local rates.

In its reply comments, TTA joined in the comments of SWBT and GTE and urged the commission to reject MCI's recommendation that the commission withdraw §23.136. In support of its position, TTA stated that withdrawal of §23.136 would require the companies to meet the revenue obligations provided under PURA §56.025 through local rate increases rather than USF support. TTA also asserted that the Kansas Court of Appeals decision cited by MCI should not be relied upon by the commission on the basis that the decision can not be reconciled with the FCC's universal service order which maintained revenue neutrality for rural telephone companies. TTA also argued that the Kansas Court of Appeals decision failed to give consideration to the normal ratemaking processes of a public utility commission. In addition, TTA criticized the Kansas decision for its failure to reference the recent Eighth Circuit orders in Competitive Telecommunications Ass'n v. F.C.C., 120 F.3d 753 (8th Cir. 1997), which have significantly limited the breadth of the FCC's implementation of the FTA.

The commission is not persuaded by the arguments presented by MCI and AT & T and declines to withdraw §23.136. Although §23.136 provides a revenue neutral mechanism through which ILECs serving fewer than 5 million access lines may seek to recover funds from the TUSF, the commission concludes that §23.136 does not violate the provisions of the FTA or the principle of competitive neutrality. FTA §254 does not expressly prohibit states from adopting a revenue neutral universal service funding mechanism. Rather, FTA §254 provides a safe harbor for states creating universal service procedures and precludes the FCC from preempting those procedures under FTA §253(a) if certain guidelines are followed. In addition, FTA §254(f) grants states the authority to adopt intrastate universal service funds. The commission believes that §23.136 is consistent with the principles set forth in FTA §254(f) and (k) because it does not subsidize competitive services nor does it require local service to bear more than a reasonable share of joint and common costs.

The commission is also not persuaded by the Kansas Court of Appeals decision cited by MCI in support of its federal preemption argument. From a procedural perspective, the commission does not consider the ruling of a Kansas court to be of any impact on Texas law. Further, the commission notes that the Kansas Supreme Court has granted a petition for review filed by Sprint and other parties regarding the opinion. Pursuant to Kansas Supreme Court Rule 8.03(l), in instances in which a petition for review is pending before the Supreme Court, "the opinion of the Court of Appeals is not binding on the parties, may not be cited as precedent, and is not binding on district courts." In addition, the commission disagrees with the substantive conclusions reached by the Kansas Court of Appeals in its decision. Not only has the Kansas Court of Appeals imposed a restriction on intrastate regulation authority which is not explicitly contained in the FTA, but the KUSF referenced in the Kansas Court of Appeals decision is distinguishable from the TUSF in several respects. First, the KUSF was not formulated in the same manner as the TUSF. Unlike the Kansas fund, whose size was determined by the amount of the ILEC access reductions, the TUSF will utilize a forward looking cost methodology to determine the size of the universal service fund. In addition, unlike the KUSF, access, toll, or other rate reductions under the TUSF would be based on the amount of the TUSF support received by the ILEC. These reductions are necessary in order to ensure that the ILEC does not receive a financial windfall. The rate reductions are also necessary in order to ensure that the existing implicit support in rates is replaced with an explicit, cost-based universal service plan as intended by the FTA.

The commission also finds support for its position by reviewing the interim universal service support mechanism that the FCC has adopted. Specifically, the FCC has adopted a revenue neutral universal service support mechanism for small and rural companies. The commission believes that adoption by the FCC of a revenue neutral support mechanism supports the commission conclusion that establishment of a state universal service fund with a revenue neutral component does not violate the FTA.

Section 23.136(b) sets forth the applicability and circumstances under which an ILEC may seek to recover funds from the TUSF.

TTA and JSI sought clarification regarding whether subsection (b)(1) continues funding for the existing HCAF. TTA stated that subsection (b)(1) covers only changes in HCAF after the effective date of the rule. As a result, TTA argued that there is no section in the rule which covers existing HCAF. TTA also maintained that subsection (b) should be revised to reference the effective date of PURA §56.025 in order to clarify that all subparagraphs of subsection (b) apply to changes occurring from and after September 1, 1995.

The commission clarifies that §23.136(b)(1) provides continued TUSF support for the existing HCAF. The commission declines, however, to revise subsection (b) to specify that all subparagraphs of subsection (b) apply to changes occurring from and after September 1, 1995. Although subsection (b) enables a carrier that is currently receiving HCAF pursuant to P.U.C. Subst. R. §23.53(d) to request a continuation of its existing HCAF support amount, this subsection does not provide a mechanism through which qualifying carriers may seek to recover future reductions in high cost assistance revenue. Specifically, the commission does not interpret subsection (b) to allow qualifying ILECs to seek reimbursement of any change in revenue that may be experienced as a result of a small/rural ILEC's eventual transition to a cost based support calculation.

TTA, TSTCI, and JSI also questioned whether subsection (b)(3) permitted a small ILEC to recover universal service support if it exits the intraLATA toll market as a regulated carrier. TTA and TSTCI contended that subsection (b)(3) should be revised to clarify that PURA §56.025 permits an ILEC to recover through the TUSF the resulting loss of contribution from intraLATA toll that will occur if the ILEC exits the toll market upon implementation of intraLATA dialing parity.

In reply comments, MCI reasserted its position and argued that PURA §56.025 does not guarantee revenue recovery in the event that an ILEC chooses to exit the intraLATA toll market. MCI argued that the ILEC position that such recovery is available misinterprets PURA §56.025(d), which authorizes only the recovery of the "reasonably projected reduction in contribution" from intraLATA toll services. Under MCI's interpretation of PURA §56.025, ILECs may only recover the loss in contribution that they experience as a result of competition and not on the basis of a business decision to exit the retail intraLATA toll market altogether. MCI also urged the commission to reject suggestions that would transform the TUSF into what MCI believes would be a revenue replacement support program for ILECs. MCI stated its belief that such a mechanism would enable ILECs to maintain monopoly prices and send improper price signals to the access market.

TCG argued that subsection (b) was inconsistent with the emergence of a competitive market. Specifically, TCG objected to the use of TUSF to compensate for changes related to the intraLATA 1+ dialing or from other governmental agency action. In addition, TCG maintained that disbursement of universal service support pursuant to subsection (b) should occur only after a commission hearing and that any increase in federal universal service funds should result in decreased state universal service support.

The commission disagrees with TTA, TSTCI, and JSI that §23.136(b)(3) should be revised to specifically permit qualifying ILECs to recover through the TUSF the resulting loss of contribution from intraLATA toll that will occur if the ILEC exits the toll market upon implementation of intraLATA dialing parity. Although subsection (b)(3) enables an ILEC to recover through either the universal service fund or an increase to rates the reasonably projected reduction in revenue as a result of the implementation of intraLATA dialing parity, the commission believes that the issue of whether a qualifying ILEC may recover revenues lost as a result of its decision to exit the toll market is one which must be considered by the commission in the course of the proceeding under §23.136(b)(3). Accordingly, no change to subsection (b)(3) has been made based on these comments.

Section 23.136(d)(1) requires that applications filed under this rule be docketed.

TTA stated that proceedings under §23.136 which are not contested do not need to be docketed. Sprint noted that automatic docketing of this type of filing interfered with the legislative intent to process these applications quickly and efficiently through administrative processing. In its reply comments, Sprint concurred with TTA's comment that docketing under §23.136 was necessary only when parties intervene or objections are raised.

The commission agrees with the comments of TTA and Sprint and makes the necessary revision to §23.136(d)(1) of the rule.

Only TCG commented regarding §23.138. TCG stated that §23.138 was not necessary because the proposed rules in toto adequately and comprehensively address universal service issues in Texas.

The commission disagrees with TCG. The commission believes that there may be circumstances under which ILECs serving high cost areas of the state require financial assistance, in addition to the funds provided under §§23.133, 23.134, or 23.136 of this title, so that these carriers may continue to provide basic local exchange service at reasonable rates. Section §23.138 implements a mechanism through which additional TUSF financial assistance may be recovered. The commission believes that the absence of such a recovery mechanism would adversely affect universal service because it would prohibit a carrier from receiving additional financial assistance in instances in which the carrier can demonstrate a revenue need in PURA §53.105 proceeding.

Section 23.142 implements the Lifeline and Link Up Service programs for low income consumers.

TTA and TSTCI recommended that the adoption date for the rule be accelerated to ensure compliance with federal universal service requirements by January 1, 1998. TTA asserted that because the rule would not be adopted until December 17, 1997, a state Lifeline program could not become effective by January 1, 1998. As a result, TTA was concerned that carriers currently receiving federal universal service assistance may no longer qualify for that support as of January 1, 1998. TSTCI agreed with TTA's comment that timely certification of eligibility was vital.

In order to ensure that eligible carriers receive federal certification by January 1, 1998, the commission's Office of Regulatory Affairs (ORA) has initiated Docket No. 18100. Docket No. 18100 provides a process through which eligible carriers will receive federal certification prior to January 1, 1998, and therefore continue to qualify for federal universal service assistance. Because a proceeding has already been initiated to address the concerns raised by TTA and TSTCI, the commission declines to accelerate the adoption of §23.142.

Section 23.142(d)(1) sets forth the requirements for the provision of Lifeline services. TTA, GTE, TSTCI, and SWBT commented on the subsection (d)(1)(B) toll limitation requirements. Although TTA acknowledged that the toll limitation requirements in subsection (d)(1)(B) mirror the requirements of the federal Lifeline program, TTA objected to the rule provisions on the grounds that toll control was technically difficult to provide, and that other options, such as debit cards, were more efficient. TTA also noted that a number of parties have challenged the toll limitation requirement of the federal Lifeline program and suggested that the commission join in this challenge. To address its concerns, TTA recommended revisions to subsection (d)(1)(B) that would require carriers to provide toll control only if required by the federal Lifeline program and that would recognize prepaid calling cards as an effective means of toll control. GTE concurred with TTA's objection to the toll limitation requirements set forth in subsection (d)(1)(B) and supported TTA's suggested revisions. TSTCI also objected to the toll control requirement for toll control in subsection (d)(1)(B) and stated that because none of its members had systems in place to provide this service, these companies would be forced to request waiver proceedings under subsection (d)(1)(B)(ii).

The commission declines to revise §23.142(d)(1)(B) as suggested by TTA. In order to be eligible for federal universal service assistance, a carrier must provide Lifeline service in conformity with 47 C.F.R. §54.401. The toll limitation requirement set forth in subsection (d)(1)(B) mirrors the federal toll limitation requirement for Lifeline service. The commission concludes that these requirements are necessary in order to satisfy the criteria necessary to receive federal universal service assistance. The commission notes that carriers unable to satisfy the requirements of subsection (d)(1)(B) may seek a waiver of the toll limitation requirements pursuant to subsection (d)(1)(B)(ii) of the rule. As suggested by the parties, the commission will continue to monitor developments at the FCC regarding the federal toll limitation provisions to determine if future revisions to the subsection are required.

Section 23.142(d)(1)(B)(ii) sets forth the circumstances under which the commission may waive the toll limitation requirements of subsection (d)(1)(B). SWBT commented that the waiver provision does not take into account circumstances where the LEC cannot install the necessary equipment because it is not the intraLATA provider.

The commission disagrees with the comment of SWBT. Section 23.142(d)(1)(B)(ii) provides that the commission may grant a waiver of the toll control requirement upon a finding that exceptional circumstances prevent an eligible telecommunications carrier from providing the service. The commission believes that the "exceptional circumstances" standard provides sufficient latitude for the commission to consider a wide range of circumstances that may prevent a carrier from providing the required toll limitation services and that such circumstances are best reviewed on a case specific basis. Accordingly, no change to the rule has been made based on this comment.

Section 23.142(d)(1)(C) prohibits disconnection of service for non-payment of toll charges. TSTCI commented regarding the waiver provision contained in subsection (d)(1)(C)(ii). Specifically, TSTCI recommended deleting the phrase "qualifying low-income consumers " and inserting the phrase "qualifying Lifeline customers" in order to tighten and clarify the application of the rule. In order to minimize tariff filings, TSTCI also recommended revising the rule to allow for the automatic waiver of subsection (d)(1)(C) upon commission approval of a tariff offering toll blocking at no charge for small ILECs that include this provision in their Lifeline tariffs.

The commission declines to make the revisions suggested by TSTCI. With regard to the reference to qualifying low-income customers in §23.142(d)(1)(C)(ii), the commission believes that the reference to these customers, as opposed to qualifying Lifeline customers, is more descriptive and succinct because low-income customers are the class of customers that are eligible to participate in the Lifeline Service program. The commission also declines to revise the rule to provide for an automatic waiver of the prohibition against disconnection for non-payment of toll charges. The commission concludes that such a provision is not appropriate because the provision of toll limitation is only one of three conditions that must be satisfied in order to qualify for a waiver under subsection (d)(1)(C)(ii).

Section 23.142(d)(2) sets forth the Lifeline support amounts that eligible telecommunications carriers may receive for each qualifying low-income consumer participating in the Lifeline Service program. TTA and TSTCI recommended language to revise subsection (d)(2)(B)(ii) and (iii) in a manner that would ensure that an eligible carrier was entitled to reimbursement from the USF upon compliance with the requirements of the Lifeline program.

The commission agrees and makes the necessary modifications to §23.142(d)(2)(B)(ii) and (iii).

TTA questioned whether the commission had statutory authority to authorize a state-approved reduction of $3.50 in the monthly amount of intrastate charges a qualifying low-income consumer pays. TTA also questioned whether the commission had statutory authority to fund this state-approved reduction from the TUSF. In order to resolve this issue, TTA suggested that the commission seek an Attorney General's opinion before taking further action.

The commission declines to act on this recommendation. The commission's authority to authorize state-approved reductions in the monthly intrastate charges paid by qualifying low-income customers and the corresponding reimbursement of these reductions through the TUSF is authorized under PURA §51.002(1)(G), which defines "basic local telecommunications service" as including "lifeline and tel-assistance service." Pursuant to PURA §56.021, the commission bears the responsibility of adopting and enforcing rules which establish a universal service fund to assist LECs in providing basic local telecommunications service at reasonable rates in high cost rural areas. The commission believes that the state-approved reduction in the monthly intrastate charges paid by qualifying low-income customers and the funding of these reductions through the TUSF ensure that basic local telecommunications service is available to low-income customers at reasonable rates. By implementing the state-approved reduction of $3.50, the state becomes eligible to obtain one half of that amount, $1.75, from the FUSF.

Section 23.142(d)(2)(B)(iii) required ILECs that are eligible telecommunications carriers and that have Lifeline programs in place prior to the implementation of the rule to reduce rates for toll and access services by an amount equivalent to the amount of support the ILEC is eligible to receive under this clause.

The commission revises (d)(2)(B)(iii) to delete the reference to toll and access services. The commission has concluded that the services to which the rate reduction will be applied is more appropriately determined in the compliance proceeding.

TTA also sought clarification on whether the state-approved discount for Lifeline service will become effective January 1, 1998. TTA suggested that if the commission determined that the state- approved discount was not effective as of January 1, 1998, the rule should be revised to clarify that the state discounts become effective on the date of implementation of the TUSF.

The commission is not persuaded to revise the rule as suggested by TTA. The state-approved discount for Lifeline service is effective as of January 1, 1998. The commission recognizes that the TUSF support will not be available for the additional $3.50 state discount until the TUSF is implemented. Those companies providing the state-approved discounts pursuant to §23.142(d)(2)(iii)(I) as of January 1, 1998, however, may seek to recover the support amounts incurred as of January 1, 1998 from the TUSF upon implementation of the fund.

Section 23.142(e)(1)(B) requires carriers to defer connection charges for Lifeline customers for one year on an interest-free basis. Section 23.142(f)(A)(ii) requires carriers to notify eligible consumers by mail of changes in their service that are necessary to qualify them to receive Lifeline service.

GTE argued that subsections (e) and (f) should be revised to permit carriers to recover these and any other legitimate expenses from either the TUSF or the qualifying low-income consumer.

No change to the rule has been made based on this comment. The commission concludes that the expenses associated with the requirements set forth in §23.142(e) and (f) will be minimal and that carriers will not suffer economic harm as a result of providing these services.

Generally, §23.142(f) enumerates the obligations of the consumer, TDHS, and the eligible telecommunications carrier with regard to the Lifeline and Link Up Service programs.

TTA recommended that subsection (f)(2) be revised to clarify that consumers must apply for the Lifeline and Link Up Service Programs.

The commission is not persuaded to adopt TTA's recommendation. Section 23.142(f)(1) sets forth the obligations of the customer regarding Lifeline and Link Up Services. Included within these obligations is the requirement that the customer apply for the Lifeline and Link Up Service programs.

SWBT suggested that subsection (f)(3)(B) was not consistent with subsection (f)(3)(A), but provided no explanation of its position.

The commission concludes that §23.142(f)(3)(A) and (B) are consistent and has made no change to the rule based on this comment. Even though the commission makes no change in response to this comment, the commission makes minor modifications to clarify §23.134(f).

Sections 23.142(f)(2) and 23.143(d)(2) require the TDHS to provide carriers participating in the Lifeline, Link Up, and Tel-Assistance programs with lists of eligible consumers on a semi-annual basis. The data exchange process will be complex in areas where basic local telecommunications services can be provided by more than one carrier. The commission asked parties whether there is a less burdensome manner for TDHS and participating carriers to exchange necessary information.

AT & T, MCI, SWBT, and TTA recommended that TDHS disseminate eligible consumer information to the carriers electronically and in a manner that would ensure confidentiality. Specifically, AT & T suggested constructing a restricted, confidential Internet web site. SWBT suggested implementing an online carrier-specific retrieval database that could be accessed by passwords. TTA recommended implementing a dial-up access system that would be updated daily as TDHS received and processed Lifeline and Tel-Assistance applications.

MCI stated that an ILEC whose eligible customer subsequently changed companies should be required to provide the customer's eligibility information to the new provider. TTA objected to this suggestion and indicated its support for the data exchange procedures set forth in the proposed rule.

Both CU and OPC endorsed an automatic enrollment system which would eliminate the consumer application requirement. CU argued that the State of New York currently uses an automatic enrollment system and that the program is more efficient and effective than the system proposed in the rule. In addition, CU suggested that if the consumer application requirement is retained, consumers should be allowed to file their applications directly with the phone companies, as well as with TDHS. TTA objected to the implementation of an automatic enrollment program and indicated that the consumer should bear some responsibility to indicate a desire to participate in the available discount programs.

CU also endorsed using a self-certification system similar to that in place in the State of California. GTE objected to this suggestion and suggested that self-certification may permit consumers to game the system. In support of its position, GTE stated that over 20% of GTE's California customers were self-certified to receive low-income support and that this percentage was unreasonably high. GTE also asserted that it was not appropriate to risk increasing the bills of all Texas consumers as a result of low income self-certification when a simple linkage to TDHS provided an existing and rational screening mechanism to ensure that participation in these programs was justified.

As an alternative to both the application procedure set forth in the rule and the automatic enrollment option, OPC suggested that TDHS provide a verification slip to each eligible consumer at the time the check was issued and that the consumer would then present the verification slip to the telephone company when paying the bill. OPC explained that this procedure would link eligible consumers with the appropriate telephone company and preserve the consumer's right to elect not to participate in the programs. In reply comments, TTA stated that it supports OPC's proposal, but recommended that the customer be required to present the verification slip only when service was ordered and not every month when the bill was paid.

While the commission declines to revise the rule as published, the commission is receptive to the suggestions offered by the commenting parties regarding the registration process for the Lifeline and Tel-Assistance programs. Accordingly, the commission will consider initiating a proceeding to examine ways in which the exchange of information between TDHS and participating carriers can be simplified and ways in which the application procedures for participation in these low-income programs can be made more efficient. In order to ensure that qualifying low-income consumers receive the full benefits of the Lifeline and Link Up Service programs during the period in which procedures regarding the exchange of information with TDHS are developed, the commission clarifies that a qualifying low-income consumer may self certify that he/she is eligible to participate in the Lifeline and/or Link Up Service programs pursuant to §23.142(f)(3)(C).

Sections 23.142(g) and 23.143(i) establish tariff requirements for the Lifeline Service and Link Up Service programs, and the Tel-Assistance Service program, respectively.

MCI and Sprint urged the commission to revise §23.142(g) and §23.143(i) to enable providers not currently in commercial operation to file the requisite tariffs either when they commence commercial operation or when they apply for designation as eligible telecommunications carriers.

The commission agrees with the comment of MCI and Sprint and has made the necessary revisions to the rules. Specifically, the commission revises §23.142(g) to require the filing of a tariff to implement Lifeline and Link Up Service prior to the filing of an application for designation as an eligible telecommunications carrier. The commission also revises §23.143(i) to require ILECs to file a tariff implementing Tel-Assistance Service within 30 days following the effective date of the rule. The commission believes that reducing the time period from 60 to 30 days in which to file a tariff implementing Tel-Assistance Service is consistent with the 30 day filing requirement for the Lifeline and Link Up tariff established in §23.142(g). In addition, the commission revises §23.143(i) to require LECs to file a tariff implementing Tel-Assistance Service within 30 days of the effective date of §23.143 or within 30 days of beginning to provide local exchange service in Texas, whichever is later.

Section 23.143 implements the provisions of PURA §§56.071-56.078 and sets forth the requirements of the Tel-Assistance Service Program.

TTA, TSTCI, and Sprint argued that qualifying low-income consumers should not be allowed to participate in both the Tel-Assistance and Lifeline Service programs. Although the parties agreed that the consumer should receive the largest available discount under either program, the parties argued that the discount structures should not be stacked. TSTCI pointed out that a combined application of the two programs could reduce the rate below the $2.50 minimum specified in §23.142.

The commission declines to revise §23.142 and §23.143 to prohibit the aggregation of the Lifeline and Tel-Assistance discount rates as suggested by TTA, TSTCI, and Sprint. The aggregation of the discount rates will enable qualifying low-income customers to cover the costs associated with having access to basic local telecommunications services. In response to the TSTCI comment, the commission notes that §23.142(d)(2)(C)(iii) ensures that the monthly discounted residential rate for qualified low-income customers will not be reduced below $2.50 even in the event that the discount rates are aggregated. The commission believes that the $2.50 minimum specified rate strikes an appropriate balance between guaranteeing qualifying low-income customers access to basic local telecommunications service at a reasonable rate and ensuring that the customer bear a portion of the cost associated with the provision of telecommunications service.

SWBT mentioned that the rule restricts the supported rate for basic local telecommunications service to $2.50 per month. SWBT noted that this restriction created a conflict for its customers that receive service under the tariffed rates for grandfathered two-party, four-party and measured service. SWBT stated that the tariffed rates for these grandfathered services falls below $2.50. In order to address this issue, SWBT suggested that these customers, as well as existing customers for Aid to Families with Dependent Children (AFDC), the Medical Assistance Program (MAP), and Women, Infants and Children (WIC) at existing premises be exempted from the $2.50 restriction.

The commission declines to revise the rule as suggested by SWBT. The baseline rate established in §23.142(d)(2)(C)(iii) is applicable to the Lifeline Service Program discounted rate and not other discount programs. Therefore, SWBT customers receiving service under the tariffed rates for grandfathered two-party, four-party and measured service may continue to receive service under the tariffed rates for grandfathered two-party, four-party and measured service.

Section 23.147 sets forth the requirements for designation of LECs as Eligible Telecommunications Providers to receive Texas Universal Service Funds (TUSF).

Section 23.147(b) sets forth the definitions. TCG strongly supported §23.147(b)(1), which defines the certificated service area, with the clarification that the certificated service area may be the geographic area defined in a service provider certificate of operating authority (SPCOA).

The commission declines to clarify the definition as requested by TCG. PURA §51.002(4) defines a LEC as a telecommunications utility that has a certificate of convenience and necessity (CCN) or a certificate of operating authority (COA). Given that an SPCOA is not a LEC and, therefore, an SPCOA is not eligible to be certified as an ETP, the clarification requested is unnecessary.

Section 23.147(c) sets forth the requirements for establishing ETP service areas. As proposed, subsection (c)(1) set forth the requirements for establishing a THCUSP service area based upon CBGs.

GTE noted that for universal service purposes a CLEC's THCUSP service area should mirror the underlying ILEC's service area, including split CBGs. TTA objected to the proposed rules allowing an ETP to gerrymander its ETP service area, thereby allowing it to selectively serve any size area, yet receive TUSF funds for doing so. TTA recommended revising subsection (c)(1) to require an ETP to serve whole CBGs in order to be eligible for TUSF in that CBG unless its existing certificated service area or the underlying ILEC's certificated service area splits a CBG.

Sprint PCS applauded the commission's proposal in §23.147(c) to designate eligible carrier service areas on the basis of CBGs, averring that it would be anticompetitive to define service areas on the basis of the incumbent's coverage areas. Sprint PCS opined that the FTA requires state commissions to promote competition and encourage the deployment of advanced telecommunications technologies and that the Texas' Utilities Code makes clear that the commission should promote diversity of telecommunications providers and interconnectivity. Sprint PCS further noted that new entrants should not be forced to build and conform their network deployment and use of technologies in a manner identical to the plan developed by the ILECs. Rather, Sprint PCS commented, if the commission finds that the new entrant's service to an alternatively defined area advances the goals of universal service, that area should be defined as the service area for universal service purposes.

In order to maintain consistency with §23.133, the commission revises §23.147(c)(1) to remove the specific geographic area of a CBG. The revised subsection refers to the geographic area determined by the commission pursuant to §23.133, rather than to the CBGs. In response to comments that the CBG may not be the appropriate geographic area once the cost models are completed, the commission revises §23.133 to state that the commission would determine the cost based upon CBGs or other appropriate geographic area as determined by the commission.

The commission declines to make the changes requested by GTE and TTA. The commission agrees with Sprint PCS that it is anticompetitive to define service areas on the basis of an ILEC's CCN territory. Basing TUSF service areas on the ILEC's existing territory would require a new entrant to conform its service areas to the ILEC's area or not be eligible to receive TUSF support. Either of these results would dampen competitive entry by potential new ETPs. In response to TTA's comment that an ETP should be required to serve whole CBGs, except when its existing certificated service area splits a CBG or the underlying ILEC's certificated service area splits a CBG, the commission agrees that whole CBGs, or other geographic areas as determined by the commission, should be served except where the ETP's existing certificated service area splits a CBG or other geographic area and notes that subsection (c)(1) requires an ETP to serve an entire CBG or other geographic area unless its certificated service area does not encompass the entire CBG or geographic area. Further, the commission notes, that because the section does not define service areas on the basis of an ILEC's CCN territory, it is unnecessary to provide an exception to the requirement that an ETP serve whole CBGs or other geographic areas for a situation where the underlying ILEC's certificated service area splits a CBG or other geographic area.

Sprint PCS specifically objected to the proposal to define service area with reference to CBGs within a carrier's "certificated service area," and offered conforming revisions.

The commission declines to make the revisions requested by Sprint PCS. As discussed as follows, the commission finds that, because only LECs are eligible to be certified as ETPs and all LECs have certificated service areas as CCN or COA holders, the revisions requested by Sprint PCS are not necessary.

Section 23.147(d) sets forth the criteria for designation of ETPs.

Section 23.147(d)(1) states that only LECs, defined as CCN and COA holders, shall be eligible to receive TUSF support.

Sprint PCS, PrimeCo, and AT & T opined that wireless carriers should be permitted to be certified as ETPs.

Sprint PCS asserted that proposed subsection (d) violated the Communications Act of 1934, as amended, 47 U.S.C. §332(c)(3)(A) (West Supp. 1997) (the Act), by requiring mobile service providers to obtain a certificate in order to be eligible for state support. Sprint PCS acknowledged that the commission's decision to restrict eligibility to certificated LECs appeared to be based on PURA §56.021(1) and §56.023(a)(2) and (b), but asserted that there was no obligation to adhere to the state law where it directly conflicted with federal law. Sprint PCS urged the commission to revise this rule to comply with the requirements of federal law, and offered revisions for this purpose. In the alternative, Sprint PCS encouraged the commission to petition the FCC for a declaratory ruling regarding the validity of the certificate restriction imposed by the Utilities Code. PrimeCo stated in its reply comments that it agreed with Sprint PCS that the commission's universal service rules must not preclude wireless carriers from being eligible to receive TUSF support when the wireless service they provide satisfies the criteria established in the FTA.

PrimeCo stated that commercial mobile radio service (CMRS) providers do not offer a service that includes flat-rate, single party residential and business local service and urged the commission not to impose a requirement that all service providers match the service structure that currently exists for the wireline technology and the ILECs. PrimeCo commented that, in the alternative, the commission should state in its rule that a good cause waiver of the requirement to provide all of the services listed in §23.133 may be granted to wireless carriers seeking to qualify as ETPs.

In its reply comments, AT & T agreed that CMRS providers should be eligible to draw from the TUSF. AT & T argued that it would be technological discrimination to deny TUSF eligibility to a carrier that otherwise meets the criteria of the Act §214(e), as amended. As an alternative, AT & T suggested keeping the restriction against wireless carriers but to provide the good cause exception as suggested by PrimeCo.

TTA opposed Sprint PCS' proposal to allow mobile carriers to qualify as ETPs without obtaining state certification. TTA also stated that PrimeCo's proposal to allow mobile carriers to qualify as ETPs without providing basic local exchange services was not competitively neutral. TTA opined that there is nothing in the proposed rules that restricts a CMRS provider from offering the services which the commission has defined for support and qualifying as an ETP. TTA further comments that what the CMRS providers object to is that they would have to offer BLTS services in order to be eligible for TUSF funds.

In its reply comments, SWBT stated that there is no need for the commission to create special eligibility for wireless services for disbursements from the THCUSP as suggested by PrimeCo. SWBT further commented that if wireless service carriers take the necessary steps by offering service as the rules require and by obtaining a certificate as the rules also require, they will qualify for TUSF support, and that under no circumstances should the commission waive any of these requirements for wireless carriers. In SWBT's opinion, if CMRS providers are to be eligible for subsidies, they should be required to comply with the same eligibility criteria and rules as their competitors.

GTE contended likewise, that there is no validity to the claim that wireless providers are ineligible to draw from the TUSF. GTE claimed there is nothing in either PURA or the commission's rules which would preclude a wireless provider from seeking a CCN or COA and qualifying as an ETP. GTE asserted that the fact that a wireless carrier may not want to assume the obligations associated with obtaining such certification or submit to the jurisdiction of the commission does not mean that a wireless carrier is not eligible to receive funds from the TUSF. GTE opined that that is a business decision that a wireless carrier is free to make.

The commission declines to make the changes to §23.147(d)(1) requested by Sprint PCS, PrimeCo, and AT & T. The commission finds that PURA §56.021(1) and §56.023(a)(2) and (b) require that the commission's rules establishing a universal service fund must apply to LECs and must contain eligibility requirements for LECs only. The commission is not persuaded that the Act §332(c)(3)(A), as amended, has been violated by requiring mobile service providers to obtain a certificate and provide the supported services in order to be eligible for state universal service support. That section prohibits states from regulating CMRS rates and entry, but it permits states to regulate the terms and conditions under which CMRS is provided. Nothing in this section regulates the rates or entry of any CMRS provider; rather it prohibits a CMRS provider from being certified as an ETP unless it meets all of the qualifications for such certification, including obtaining a certificate as a CCN or COA holder and offering the supported services.

The commission finds that no technological discrimination occurs by denying TUSF eligibility to a carrier that otherwise meets the criteria of the Act §214(e), as amended. A carrier may be certified as an ETP if it meets the criteria, regardless of the technology used to deliver service. FTA §254(f) allows a state to adopt regulations not inconsistent with the FCC's rules to preserve and advance universal service. It further allows a state to adopt regulations to provide for additional definitions and standards to preserve and advance universal service within that state only to the extent that such regulations adopt additional specific, predictable, and sufficient mechanisms to support such definitions or standards that do not rely on or burden federal universal service support mechanisms. The commission finds that §23.147, which requires that a carrier be certified as a CCN or COA holder adopts additional standards to preserve and advance universal service within the state and that such standards do not rely on or burden federal universal service support mechanisms. Therefore, the commission finds that this section complies with the requirements of FTA §254.

Further, the commission finds no need to petition the FCC for a declaratory ruling regarding the validity of the certificate restriction imposed by PURA, because the commission finds no conflict with the Act.

The commission also declines at this time, based upon this record, to provide for a blanket good cause waiver for the wireless carriers for the provision of the supported services, because of the potential anti-competitive effects of such a waiver. The commission notes that it may be unfair to require one type of carrier to comply with one set of requirements and another type of carrier to comply with another in order to be eligible to be certified as an ETP; therefore, the commission declines to provide for a blanket good cause waiver in the rule for the situation described by PrimeCo.

TCG expressed concern that the definition of ETP provided in §23.133 and relied upon in §23.147 might be interpreted to exclude holders of SPCOAs from being recipients of TUSF. TCG stated that its concern stemmed from the ambiguous usage in PURA of the term "LEC," and from the reliance on "LEC" in the definition of the term "ETP." TCG noted that PURA §51.002(4) defines a LEC as a holder of a CCN or a COA. TCG urged the commission to confirm that, for purposes of these rules, the phrase "certificate of operating authority" necessarily includes holders of both SPCOAs and COAs because PURA clearly intends it to include both for the purposes of PURA §51.002(4). TCG further explained that this was clear from the explanation provided in the Public Utility Regulatory Act of 1995 (PURA95) §3.2531(b), which states that an application for a COA shall specify whether the applicant is seeking a facilities based COA under that section or an SPCOA under PURA95 §3.2532.

SWBT indicated in its reply comments that it considered unreasonable TCG's argument that it should be entitled to receive TUSF support even though it does not qualify. SWBT commented that there is no statutory basis for TCG's argument that the term "LEC" contained in the TUSF rule should include holders of both SPCOAs and COAs and insisted that the terms "COA" and "SPCOA" are not interchangeable. SWBT opined that PURA §52.151 refers to the two certificates separately; that PURA Chapter 54, Subchapters C and D also make clear that the term "COA" is not an acronym or shortening of the term "SPCOA;" that PURA §54.001 also distinguishes between the two types of certificates; and that PURA §56.021 limits the commission's authority to implement a universal service plan to LECs. In SWBT's opinion, the plan can only be applicable to holders of CCNs and COAs, and this limitation should not be a problem for TCG and other companies like it who hold SPCOAs as the commission has previously waived the build-out requirements of PURA §54.104. SWBT further noted that the FCC has recently preempted the build-out requirements in FCC 97-346, In the Matter of the Public Utility Commission of Texas; the Competition Policy Institute, IntelCom Group (USA), Inc., and ICG Telecom Group, Inc., AT & T Corp., MCI Telecommunications Corporation, and MFS Communications Company, Inc.; Teleport Communications Group, Inc.; City of Abilene, Texas; Petitions for Declaratory Ruling and/or Preemption of Certain Provisions of the Texas Public Utility Regulatory Act of 1995; therefore, an SPCOA holder can now more easily obtain a COA.

In their reply comments, TSTCI and TTA opposed TCG's position in favor of SPCOA holders receiving TUSF support, and emphasized "the self serving nature of TCG's argument." TTA added that the reason for distinguishing between a COA holder and an SPCOA holder for state USF purposes is that only the COA holder has the obligation to serve customers within its certificated service area and that this is an obviously necessary commitment for receipt of funds intended to advance universal service.

The commission disagrees with TCG that the term "COA" encompasses both "COA and SPCOAs." The commission finds that PURA sets forth the criteria for granting a COA and an SPCOA and that these are separate certificates with separate names. The commission agrees with TTA that a reason for distinguishing between a COA holder and an SPCOA holder for state USF purposes is that only the COA holder has the obligation to serve customers within its certificated service area and that this commitment is necessary for receipt of funds intended to advance universal service. Consistent with this interpretation, the commission confirms that only COA holders and CCN holders are eligible to be certified as ETPs.

TEXALTEL stated that the appropriate public policy is to allow SPCOAs to be eligible for TUSF funding and suggested that the commission look to the FTA for preemptive guidance.

As stated previously, PURA §56.021(1) and §56.023(a)(2) and (b) require that the commission's rules establishing a universal service fund must apply to LECs and must contain eligibility requirements for LECs only; therefore, the commission finds that SPCOAs are not eligible to be certified as ETPs. The commission finds that the FTA does not preempt the state law on this matter. FTA §254(f) allows a state to adopt regulations not inconsistent with the FCC's rules to preserve and advance universal service. It further allows a state to adopt regulations to provide for additional definitions and standards to preserve and advance universal service within that state only to the extent that such regulations adopt additional specific, predictable, and sufficient mechanisms to support such definitions or standards that do not rely on or burden Federal universal service support mechanisms. The commission agrees with TTA that a reason for distinguishing between a COA holder and an SPCOA holder for state USF purposes is that only the COA holder has the obligation to serve customers within its certificated service area and that this commitment is necessary for receipt of funds intended to advance universal service. The commission finds that §23.147, which requires that a carrier be certified as a CCN or COA holder, adopts additional standards to preserve and advance universal service within the state and that such standards do not rely on or burden federal universal service support mechanisms. Therefore, the commission finds that this section complies with the requirements of FTA §254.

TEXALTEL provided an alternative if the commission does not agree that SPCOAs should be eligible. TEXALTEL submitted that if an SPCOA is providing services that TUSF would fund for a COA or CCN holder, the SPCOA should be allowed to reduce its payment obligations into the TUSF by the subsidy amount such SPCOA would have received had it been allowed to receive TUSF support. TEXALTEL argued that this flexibility is within the commission's jurisdiction since it would not be permitting the SPCOA to draw from the TUSF, but would be encouraging SPCOAs to provide, on a limited basis, subsidized services where it made sense to do so. TEXALTEL further argued that SPCOAs are encouraged to serve certain high cost, small ILEC or rural consumers by virtue of being eligible for federal subsidies.

The commission rejects TEXALTEL's suggestion to reduce an SPCOA's contribution to the TUSF by amounts that it would have received had it been eligible to receive TUSF. The commission notes that such a provision would essentially negate the provisions of PURA §56.021(1) and §56.023(a)(2) and (b) and allow virtual certification as an ETP of an SPCOA holder, even when such SPCOA holder does not meet the requirements for certification. Also, the commission finds that any SPCOA desiring certification as an ETP is free to seek certification as a COA, thus becoming eligible to be certified as an ETP.

Section 23.147(d)(1)(B) requires a LEC to offer any customer in its ETP service area basic local telecommunications services at a rate not to exceed 150% of the ILEC's tariffed rate.

GTE opposed the rate ceiling of 150% of the ILEC's tariffed rate, considering it arbitrary, excessive and inconsistent with the commission's goal of ensuring universal service at "reasonable rates." GTE indicated that whatever requirement the commission places on the COLR's basic local service price must be the same for any COLR; therefore, a CLEC-ETP should not be able to charge a higher rate for supported services than the ILEC charges. GTE further stated that the terms of the COLR obligation should be specified in such a way that a COLR cannot evade its responsibly to serve any customer in an area. GTE commented that the rule allows ETPs to serve customers selectively while leaving less attractive customers to be served by others.

TTA objected to the proposed rule's allowing an ETP to charge a rate 1.5 times the ILEC's rate and still receive full TUSF funding. TTA argued that non-ILEC ETPs should not be permitted to charge premium local rates and receive TUSF. TTA stated that an ETP should be required to offer BLTS as a stand-alone service offering, at a rate not to exceed the applicable tariffed rate for BLTS of the ILEC serving the area where the customer resides.

OPC agreed with the ILECs that the price to be offered for basic service to the public must be no greater than the tariffed rate (or the affordability benchmark when that is determined). In OPC's opinion, to do otherwise would allow abusive marketing and would deny many members of the public the benefits of competition. OPC indicated its belief that the requirement to be willing to serve all potential customers within the service territory is a crucial check on cherry picking and a vital step to protect the public interest, and this is particularly important because the rule would allow companies to define their own service territories.

In its reply comments, AT & T argued that the commission's scope of regulation over non-ILEC ETPs has been limited by the state Legislature through PURA §52.152. AT & T opined that TTA's suggestion for ordering carriers to offer a stand-alone service at a rate not to exceed that of the underlying ILEC is beyond the scope of the Universal Service Fund process and beyond the commission's jurisdiction.

The commission declines to make the revisions proposed by GTE, TTA, and OPC. The commission recognizes that CLECs most likely will offer various packages of service offerings and that the ILECs will do so as well. The commission confirms its opinion that an ETP should be required to offer BLTS as a stand-alone service offering at no higher than 150% of the ILEC's tariffed rate. The commission finds that this requirement will ensure that an ETP offers a basic service package attractive to the majority of customers, and it will prevent an ETP from offering only combined service packages that include toll and additional features at a higher price and that would be attractive to only a select group of customers. Further, the commission finds this requirement will prevent ETPs from evading their responsibilities to serve and will provide the needed check on cherry-picking.

The commission disagrees with AT & T that ordering carriers to offer a stand-alone service at a rate not to exceed that of the underlying ILEC is beyond the scope of the TUSF process and beyond the commission's jurisdiction. PURA §56.023(a)(2) gives the commission jurisdiction to adopt eligibility criteria for TUSF. The commission, however, agrees with AT & T that ETPs should not be limited by the underlying ILEC's rate. In order to address this issue, the commission has provided the CLEC ETPs with the flexibility to charge a rate not to exceed 150% of the ILEC's rate. The commission believes that requiring an ETP to provide the basic services at no higher than 150% of the ILEC's tariffed rate is appropriate and protects the public interest because it prevents new entrant ETPs from evading their obligation to serve while at the same time giving new entrant ETPs latitude in their service offerings. In any event, the commission is confident that the market will police the viability of service offerings priced in excess of prevailing rates.

Section 23.147(d)(1)(C) requires the LEC to offer basic local telecommunications services using either its own facilities or a combination of its own facilities and resale of another carrier's services.

GTE suggested that the language in §23.147(d)(1)(C) be clarified as to the area in which facilities are to be employed. GTE argued that the rule should be revised to allow universal service funding only for those lines which use the ETP's own facilities or UNEs purchased from the underlying ILEC. TTA and SWBT commented that TUSF funding should be targeted to those CBGs and customers the ETP serves through its own facilities or through use of its own facilities and cost- based UNEs. TTA advised that the rule should explicitly state that receipt of THCUSP funds is only possible as to customers served by the carrier's own facilities or through the purchase of cost-based unbundled network elements.

TTA noted that the proposed rule does not clearly require an ETP to have facilities in each CBG in which it seeks TUSF eligibility. TTA asserted that a carrier providing service solely through resale in a CBG should not be eligible for TUSF funding in that CBG, nor should a carrier receive funding for any individual customer served wholly through resold facilities. GTE argued that LECs should use facilities or a combination of facilities and resale in each high cost service area of which they are requesting universal service support.

In its reply comments, TCG urged the commission to reject SWBT's proposal to limit eligible telecommunications carriers to those which provide service over a combination of their own facilities and the resale of cost-based unbundled network elements. According to TCG, the Act §214(e)(1)(A), as amended, allows eligible telecommunications carriers to provide service through a combination of their own facilities and resale of another carrier's services.

The commission declines to revise §23.147(d)(1)(C) as requested by GTE, TTA, and SWBT. The commission notes that this subsection sets forth the criteria for certification as an ETP, and the commission finds that LECs providing service through a combination of their own facilities, which includes the use of purchased UNEs, and resale of another carrier's services are eligible to be certified. An ETP may serve customers in any combination; however, the ETP shall only receive support for lines served other than through total service resale. The commission notes that this section sets forth the requirements for certification as an ETP, but does not set forth the requirements for the lines for which an ETP may receive support, and that §23.133 and §23.134 set forth those requirements.

Section 23.147(d)(1)(D) requires that the LEC render continuous and adequate service within the area or areas, for which the commission has designated it an ETP, in compliance with the quality of service standards defined in §23.61 of this title (relating to Telephone Utilities).

MCI argued that the commission should not extend its quality of service requirements to non- dominant LECs as proposed in §23.147(d)(1). MCI opined that it would be unnecessary to do so because new entrants will keep quality of service high and many of the quality of service provisions of §23.61 do not apply to non-dominant LECs.

In its reply comments, SWBT argued against MCI's position that it should not be required to meet the commission's quality of service requirements. SWBT further commented that the only fair requirement if the commission continues to apply quality of service requirements to ILECs is that their competitors must be required to adhere to the same requirements. In its reply comments, GTE contended that if MCI wishes non-dominant LECs to be able to draw from the TUSF, they should be willing to shoulder an equivalent obligation to provide Texas consumers with a minimum level of service quality. In GTE's opinion, adoption of MCI's suggestion would not only be discriminatory on its face, but would turn on its head the universal service goal of available and comparable services.

In its reply comments, Sprint agreed with MCI that the commission's quality of service requirements should not apply to non-dominant LECs. However, Sprint indicated that it is not clear whether proposed §23.147(d)(1)(D) would have that effect. Sprint stated that §23.61 apparently recognizes that minimum standards are not necessary for non-dominant providers, since their service quality will be dictated by competitive pressures, and consequently imposes service objectives and surveillance levels on Dominant Certificated Telecommunications Utilities (DCTUs). Sprint interpreted the proposed rule as not imposing the §23.61 standards on non-DCTUs. Since MCI and TTA have read otherwise, Sprint noted that §23.147 should be clarified to require compliance with service standards defined in §23.61 only if a LEC is a DCTU.

The commission finds that, in order to qualify as an ETP, a LEC must comply with the commission's quality of service rules as set forth in §23.61(c), (d), and (e), and revises §23.147(d)(1)(D) and (g)(1)(B)(i)(V) accordingly. PURA §56.023(b) provides that eligibility criteria for receiving TUSF support must include LEC compliance with the commission's quality of service requirements. The commission notes that §23.61(c), relating to emergency operation; (d), relating to inspection and tests; and (e), relating to service objectives and surveillance levels, all set forth quality of service standards that are appropriate for all ETPs to follow as required by PURA §56.023(b). This requirement will ensure a minimum standard of service that will provide appropriate customer protection in a competitive market in return for an ETP's receiving TUSF support.

Sprint PCS noted that because additional eligibility criteria disadvantage CMRS carriers as compared to incumbent wireline carriers, and favor wireline over wireless technology, they violate the principle of competitive neutrality required by FTA §253(b) and the FCC's Universal Service Order, and the principle of comparable access established by FTA §254(b). Sprint PCS opined that additional eligibility criteria are not necessary to satisfy the requirement of FTA §253(b), because adequate consumer protection is afforded by the Act §214(e), as amended.

The commission finds that no technological discrimination occurs by denying TUSF eligibility to a carrier that otherwise meets the criteria of FTA §214(e), as amended. A carrier may be certified as an ETP if it meets the eligibility criteria, regardless of the technology used to deliver service. FTA §254(f) allows a state to adopt regulations not inconsistent with the FCC's rules to preserve and advance universal service. It further allows a state to adopt regulations to provide for additional definitions and standards to preserve and advance universal service within that state only to the extent that such regulations adopt additional specific, predictable, and sufficient mechanisms to support such definitions or standards that do not rely on or burden federal universal service support mechanisms. The commission finds that §23.147, which requires that a carrier be certified as a CCN or COA holder, adopts additional standards to preserve and advance universal service within the state and that such standards do not rely on or burden Federal universal service support mechanisms. Therefore, the commission finds that this section complies with the requirements of FTA §254.

TTA noted that, while the proposed rule required some minimum service obligations for non-ILEC ETPs, it omitted some significant service obligations that the ILEC is required to meet, e.g., §23.6, Spanish Language Requirements; §23.24, Form and Filing of Tariffs; §23.32, Automatic Dial Announcing Devices; §23.33, Telephone Solicitation; §23.40, Prepaid Local Telephone Service; §23.41, Customer Relations (boundary maps, tariff available, etc.); §23.42, Refusal of Service; §23.43, Applicant and Customer Deposit (interest rate and refunding of deposits); §23.44(c),(d), New construction (line extension and construction; response to request for service); §23.45, Billing (Information on bill, overbilling, payment plans); §23.46, Discontinuance of Service (Holidays, notice, disputes); §23.48, Continuity of Service (Emergency Operations Plan); §23.49, Extended Area Service - to extent of subsection (c): ELCS; §23.54, Pay Telephone Service - applies to certified telecommunications utilities; §23.55, Operator Services; §23.56, Statewide Dual-Party Relay Service; §23.57, Telecommunications Privacy; §23.58, Pay-per-call Information Services Call Blocking (900 and 976) for BLTS; §23.93, Distance Learning, Information Sharing Programs, and Interactive Multimedia Communications (Discounts to Schools and Libraries); §23.96, Telephone Directories; and §23.97, Interconnection. Asserting that all ETPs should be held to the same standard of service for basic local telecommunications services to be eligible for state USF funding, TTA recommended revising §23.147(d)(1)(D) to include all the obligations identified above.

In its reply comments, AT & T stated that the commission's scope of regulation over non-ILEC ETPs has been limited by the state Legislature through PURA §52.152. AT & T argued that TTA's suggestion to make ILEC rules applicable to non-ILECs is beyond the scope of the Universal Service Fund process and beyond the commission's jurisdiction. Sprint opposed TTA's proposals to expand the proposed rule to impose other requirements on competitive providers.

The commission does not revise the section as requested by TTA because the commission finds that the quality of service standards set forth in §23.61 (c), (d), and (e) are the appropriate standards that all ETPs must follow. Further, the commission finds that it is reasonable, at this time, for the additional standards cited by TTA to be required of the ILECs but not non-ILEC ETPs because the ILECs are dominant carriers. Because dominant carriers possess market power in a given geographic area with respect to basic local telecommunications service, the commission finds that it is in the public interest to protect customers by requiring such dominant carriers to adhere to standards in addition to the quality of service standards required for certification as an ETP. While the commission declines to revise the section as proposed by TTA, it disagrees with AT & T's assertion that requiring non-ILECs to adhere to rules for ILECs is beyond the scope of the Universal Service Fund process and beyond the commission's jurisdiction. PURA §56.023(a)(2) gives the commission jurisdiction to adopt eligibility criteria for the TUSF, and provides that the commission may adopt the eligibility requirements that it deems appropriate.

Section 23.147(d)(2) sets forth additional criteria that must be met by an ILEC for qualification as an ETP. As proposed, §23.147(d)(2)(A) and (B) required an ILEC regulated under PURA Chapters 58 or 59 to reduce CCL and RIC rates, and toll rates to an amount equal to the support amount the ILEC is to receive under §23.147. The commission requested that parties comment on whether the application of 60% of the THCUSP support amount to CCL and RIC rates and 40% of the THCUSP support amount to toll rates, as proposed in §23.147(d)(2)(A) and (B), reflects the respective amount of implicit support attributable to BLTS from interLATA and intraLATA telecommunications service. The commission also requested comment on whether there should be a distinction between originating and terminating access charges. The commission asked commenters to consider customer calling patterns and any other measurable indicator of network usage in their responses.

Various parties offered general comments regarding access charge reductions as well as specific comments regarding the percentage split proposal, alternatives to the split proposal, whether the commission should distinguish between originating and terminating access charges for any access charge reductions, and treatment of UNEs.

MCI argued that the universal service support should be explicitly funded in its entirety and that access charges should be immediately reduced to their economic costs. In its reply comments, MCI contended that the commission should lower access charges to economic cost so that Texas consumers can benefit from lower long distance bills. MCI argued that to do otherwise would allow ILECs to keep monopoly rents for access to their local networks in addition to the explicit and sufficient funding for their universal service requirements.

CU objected to linking access and universal service and stated that it was poor public policy to make the TUSF a dollar-for-dollar replacement pool for access charge reductions, since studies have shown that access charges are far above cost even assuming that a small portion of access has been used to subsidize basic service. CU noted that the FCC lowered access services by billions of dollars without requiring those dollars to be made up through the FUSF.

The commission agrees with MCI that universal service support should be explicitly funded in its entirety and the commission finds that this proceeding, along with the required compliance proceedings, moves toward accomplishing that result. In response to MCI and CU, the commission notes that access charge revisions are an issue in this proceeding only to the extent that access charge and intraLATA toll rates may be reduced in order to effectuate a reduction in revenues commensurate with the amount of THCUSP received by ILECs. This is necessary in order to prevent a windfall to the ILECs that they would otherwise receive if THCUSP support and the revenues from existing access charge, intraLATA toll rates, or other rates were collectively received.

The following paragraphs summarize the parties' comments on the percentage split proposal and whether the commission should distinguish between originating and terminating access charges for any access charge reductions.

MCI did not agree with the concept of revenue neutrality and opposed the "arbitrary" 60/40 percent allocation of the reductions between access and intraLATA toll rates. MCI stated that as a transition to cost-based access rates, the commission should allocate 100% of the rate reductions to access, or alternatively decide this matter in the context of the upcoming proceeding to determine costs by CBG and benchmarks.

AT & T indicated that the 60/40 split is arbitrary because it is not based on any empirical data. AT & T stated that the commission needs to distinguish between access charges and intraLATA toll rates: access charges are monopoly segments of the industry, while intraLATA 1+ dialing will become more competitive. AT & T further commented that access charges are monopoly elements and that IXCs have no choice in deciding whether to use a non-ILEC for originating and/or terminating access. AT & T supported a reduction in access rates equal to 100% of an ETP ILEC's THCUSP support rather than a reduction in intraLATA toll because it encourages competition. AT & T opined that access charges stifle competition and are an implicit subsidy and that its proposal would also benefit customers because access charges are major expenses for toll carriers for both inter and intraLATA toll rates.

In its reply comments, GTE countered MCI and AT & T's proposal to apply the entire TUSF reduction to access charges by stating that reducing access alone would result in driving access rates well below cost. GTE conjectured that access service would itself become a subsidized service. GTE further argued that if access reductions were imputed to toll, the rate decreases would vastly exceed the amount of support provided by the fund, violating the revenue neutrality principle implicit in the rules. GTE maintained that the application of universal rate reductions must mirror the current company-specific mix of support levels in each company's unique rate structure. GTE stated that an arbitrary industry-wide reduction scheme, whether 60/40 or 100% to access, will necessarily drive some companies' rates for some services below cost while leaving rates for other services artificially inflated.

In its reply comments, SWBT characterized AT & T and MCI's argument that 100% of the reductions resulting from receipt of the TUSF support by ILECs be allocated to switched access as self-serving. SWBT argued that allocating the rate reductions only to access will enable the IXCs to have a competitive advantage over the ILECs for intraLATA toll because the IXCs' cost of providing their toll service will have been reduced. LECs would have to reduce their intraLATA toll rates to remain competitive. SWBT commented that because intraLATA toll is one of the major contributors to universal service, making the reduction as AT & T and MCI argue will cause the loss of that universal service contribution without replacement from the TUSF.

In its reply comments, TTA characterized MCI and AT & T's proposals for no reductions to toll rates as self-serving, and urged the commission to reject them.

With regard to the 60/40 split proposal, SWBT stated that the percentages neither reflect the split of the overall intrastate access and toll revenues or usage, nor the split of the implicit revenue that each service provides to support reasonably priced local exchange rates for SWBT's customers in Texas. SWBT reported that the 1996 proportions of booked revenue were 70% to access, and 30% for intraLATA toll; access/toll usage 75% to access, and 25% to intraLATA toll; and the implicit support 76% from access and 24% from intraLATA toll.

TEXALTEL agreed that a 60/40 split would create some undesirable aberrations, because the ratio of traffic between ILECs varies greatly. TEXALTEL noted that some ILECs may have almost no intraLATA traffic while others may have 80% or more of their toll traffic within the LATA. TEXALTEL noted that parties raised many good arguments that TUSF receipts should be exclusively devoted to access reductions have already been stated. TEXALTEL added to those arguments by stating that some ILECs have very substantial portions of their intraLATA traffic in the short distance bands and that for these ILECs the average intraLATA toll revenues per minute may already be at or below access rates. TEXALTEL suggested that, before any ILEC is permitted to reduce intraLATA toll rates, it must examine its average toll revenue per minute and show that such revenue exceeds its access rates by enough of a margin to cover non-access costs, such as transport, billing, and marketing. TEXALTEL further suggested a default of $.03 for transport, billing and marketing for those ILECs who do not wish to compute this cost and that if an ILEC's average toll revenue per minute is more than $.03 above its access charges, the commission could permit the same average price reduction in toll as it does for access.

TTA opined that it was not possible to evaluate the reasonableness of a percentage-based allocation without knowing the dollars available for reductions. If the TUSF fund is large, a 40% allocation to intraLATA toll may be too much. TTA proposed that this section be redrafted to permit reductions to intraLATA toll rates to a competitive level, with the remaining dollars to fund reductions to access rates, and with a waiver permitted for companies for whom this method proves unreasonable.

TCG argued that §23.147(d)(2)(A) is unnecessary if the benchmark described in §23.133(e)(1)(B) already includes revenues from these rate elements.

GTE opposed the limitation of universal service rate reductions to toll and access services. GTE also opposed the application of a fixed percentage to all carriers. GTE asserted that it is not possible to assess the reasonableness of any rate reduction distribution without knowing the size of the fund.

OPC declared that it took no position on the appropriateness of the 60/40 split as an interim basis, but recommended that the commission ultimately base access charges on an analysis of costs, and a fair allocation of joint and common costs (including loop costs) to all services which use network facilities. OPC argued that although the commission proposes to have the entirety of universal service funds reflected in access charge and toll reduction, it should recognize that it may become necessary to recalibrate this reduction after development of the cost models. In particular, other services which share facilities (e.g., vertical services) may be due rate reductions as well, if the commission finds that the mark-up on these services is excessive after all joint and common costs are taken into account.

Regarding OPC's analysis of loop costs, SWBT indicated that the important issue is not the allocation of the costs based on customer usage, but, in the face of competition in high-volume urban areas, how to maintain that support. SWBT stated that OPC's proposal to allocate loop costs is simply a method to continue the discriminatory recovery of universal service support in toll and access rates of LECs and should be rejected. SWBT responded that OPC's argument that the commission should require rate reductions of vertical services is misplaced. SWBT stated that if the support to basic local services were reflected in the level of the TUSF and the benchmark were established at the local tariffed rate level, then reductions to vertical service rates could occur but only because the size of the net TUSF increased substantially. If the support implicit in toll and access rates can be dealt with in a TUSF and a more moderate surcharge established, SWBT is willing to attempt to manage the support for basic local rates implicit in vertical service rates.

TTA expressed concern that OPC's comments about revising rates after the cost models are developed might lead the commission to do so without making the corresponding changes to the benchmark itself. TTA warned against adjusting one of the inputs without readjusting the TUSF mechanism as a whole.

Sprint argued that the more economically based solution is for the ILEC to use the TUSF support to first move switched access rates closer to their forward-looking economic costs by reducing CCL and RIC rates paid by IXCs. Sprint stated that the reductions to intraLATA toll rates should be limited to the CCL and RIC rates that the ILECs impute to their own intraLATA toll rates. SWBT stated that the intent of Sprint's argument was unclear. SWBT asserted that if Sprint meant that implicit support in toll rates, which support local exchange loop costs to allow for low local rates and high cost transport (like the access CCL and RIC elements), then SWBT would agree that the TUSF should be used to effectuate a proportionate reduction in intraLATA toll support.

GTE opposed Sprint's imputation proposal in its reply comments. GTE argued that the amount of toll and access will vary between companies and that the proposal ignored the fact that non- imputed rates such as discretionary, business, and basic services in low-cost areas also provide support. GTE argued that the imputation itself would leave a large portion of current supports implicit, in violation of the FTA.

Alternatively, AT & T advocated splitting the THCUSP based on intraLATA access minutes of use, which is information the commission already requires of ILECs. With this information, in AT & T's opinion, the commission can determine the level of reduction generated by the TUSF and then calculate the amount per access and equivalent access minutes of use.

TTA opposed as unworkable AT & T's proposed calculation netting minutes of use against a credit based on dollars, then netting by another calculation based on revenues.

In its reply comments, Sprint indicated that its recommendation for access and toll reductions appears to be the same as AT & T's alternative proposal. Sprint indicated that its proposal, to make equal reductions in the per minute rates for access and intraLATA toll services, is the most rational and economically sound plan. Sprint argued that such a method most fairly reflects the historical use of subsidies from intraLATA toll and switched access rates to support BLTS and that equal reductions to switched access charges and the access amounts imputed to intraLATA toll services will encourage competition in both markets without providing an undue competitive advantage to any set of providers. Sprint indicated that it was uncertain why AT & T included a calculation of the ratio of access minutes and intraLATA access equivalent toll minutes. Sprint stated it would be simpler to sum the total access and access equivalent minutes and divide those total minutes by the TUSF amount to arrive at a cents per minute reduction.

In response to these comments, the commission revises §23.147(d)(2) to eliminate the specific reduction percentages of 60% to access and 40% to toll. The commission reiterates that an ILEC- ETP must reduce existing revenues by an amount equal to the amount it will receive from the THCUSP or agree to reduce its THCUSP receipts by certain existing revenue streams. This prevents an ILEC-ETP from receiving a windfall. The commission will address the reduction in rates in the compliance proceedings in which the commission determines the forward looking economic cost and the revenue benchmark. The commission finds that the compliance proceedings are the appropriate forums in which to determine which specific rates should be reduced and in what proportions. The commission revises §23.147(d)(2) accordingly.

AT & T argued that the entirety of access charge reductions should be made to terminating access first. AT & T contended that local competition will drive down prices for originating charges because new entrants will gain access to UNEs at cost-based rates and pay no access charges to ILECs to originate toll calls for the new entrant's customers. AT & T also proposed that CCL and RIC should be decreased first for terminating and then for originating access charges.

In its reply comments, Sprint stated that it agreed with AT & T and other parties that there should be definite priorities in the order in which reductions are made to the components of access charges. Sprint said it would support AT & T's suggestion that the priorities should be to first totally eliminate terminating access components and then reduce the originating CCL and RIC. Sprint noted that the access charges for services which are the most unlikely to face competitive pressures should be the first targets for reduction and elimination. Accordingly, Sprint recommended that the commission mandate decreases to terminating access before providing for reductions to originating access.

SWBT stated that the commission does not need to make any special distinction between originating and terminating access charges.

The commission makes no findings in this proceeding regarding whether the commission should distinguish between originating and terminating access charges for any access charge reductions. The commission will address the issue in the compliance proceedings in which the commission determines the forward looking economic cost and the revenue benchmark.

In its reply comments, SWBT argued that in order to ensure competitively neutral recovery of universal service support from all competitors until a TUSF sufficient to remove all support implicit in SWBT's access and toll rates is adopted in Texas, CCL and RIC should be charged to all providers of interexchange calling, including purchasers of UNEs. SWBT argued that unless the commission allows this to occur beyond December 31, 1997, and if the TUSF is not sufficient to eliminate all access and toll implicit support, the LECs will continue to bear a discriminatory support burden in their access and toll rates as compared to purchasers of UNEs.

The commission does not revise the rules in response to SWBT's comment. The issue of whether the CCL and RIC should be charged to all providers of interexchange calling, including purchasers of UNEs, after December 31, 1997, was not decided by the commission in this proceeding. The commission finds that this issue is particular to interconnection agreements between SWBT and specific parties. Therefore, the commission believes that it is inappropriate to address this issue in this proceeding.

Section 23.147(d)(2)(A) and (B) indicate that ILEC receipt of THCUSP support is conditioned on reductions in access rates and toll rates. The commission sought comment on the jurisdictional limitations with respect to (a) the conditioning of ILEC receipt of TUSF support on the reduction of any set rates and (b) the requirement of proof from the IXCs that they have indeed passed savings from access rate reduction through to all end user customers.

GTE, MCI, OPC, Sprint, SWBT, and TTA indicated that the commission does have authority to condition ILEC receipt of TUSF support to the reduction of certain rates.

MCI stated that this position is based on the commission's rate-setting authority over ILECs and its authority to encourage the development of competition in the local market.

In support of its position on commission authority over ILECs, OPC cited FTA §254(e) and PURA §56.021, both of which define the purpose of universal service support. OPC argued that a company that receives universal service support in place of access charge reductions, but then fails to effectuate the access charge reduction, would not be using the support for the intended purpose.

TTA responded that the commission can condition receipt of THCUSP support to a reduction of rates by making the reduction a condition of eligibility and by making participation in THCUSP support voluntary, and that ILECs will then opt in or not depending on whether receipt of TUSF support is better than maintaining access or other rates at current rate levels.

The commission concurs with the commenters that it does have authority to condition ILEC receipt of TUSF support to the reduction of certain rates and retains this requirement in §23.147.

In addition, TTA commented that if mandatory rate reductions are a condition of THCUSP eligibility, they should be accomplished on a revenue neutral basis, for TTA understands that §23.133 is intended to be revenue neutral; however, the required reductions should not be a part of the §23.134 plan, as TUSF funds under that section replace existing revenue streams and do not create new revenues as under the THCUSP, absent offsetting rate reductions.

The commission agrees with TTA's understanding that the reductions addressed in §23.147(d)(2)(A) and (B) apply to THCUSP as provided in §23.133.

GTE, MCI, Sprint, SWBT, TTA, and AT & T agreed that the commission's authority over IXCs is limited to the filing of reports. OPC was the exception, indicating that it believes that the commission has authority over IXCs.

AT & T opined that the commission does not have the authority to require IXCs to pass through access charge reductions or to direct that the reduction redound to the benefit of certain customer classes. AT & T also stated that the commission does have the power to require reports from telecommunication utilities pursuant to PURA §52.102(3).

MCI stated that the commission does not have rate-setting authority over non-dominant carriers (including IXCs). MCI stated that the commission may require registration, maintenance of statewide average rates, certain quality of service standards, access requirements, and the filing of reports. MCI postulated that competition will ultimately drive down costs when access reductions materialize. In its reply comments, MCI pledged to flow through all access charge reductions (net of FUSF obligations) to consumers and committed to voluntarily reporting those reductions to the commission.

Sprint argued that the commission has no authority to require a pass-through of reductions; however, pursuant to PURA §§52.101, 52.102, and 52.104 - 52.106, IXCs may be required to report whether they have in fact passed on the savings. Sprint suggested that such reports should only be required if the commission has reason to believe that an IXC has not passed through the reduction.

SWBT stated that PURA §52.102 sharply limits the commission's authority over IXCs, but that PURA §52.102(3) permits the commission to require IXCs to file reports which affirmatively state the price reductions which IXCs have passed through to their customers. SWBT further stated that the commission could condition receipt of TUSF funds on an IXC's making the necessary rate reductions.

TTA agreed that PURA §52.102(3) would permit the commission to require IXCs to file reports which could be used to require IXCs to report the price reductions, if any, which IXCs have adopted. TTA noted that such a report would at least give the commission a means to identify those IXCs which have or have not passed access reductions through to their customers. In its reply comments, TTA suggested revising the rule to require IXCs seeking ETP status to report the total access reductions received, as well as both the specific long distance rates reduced and the revenue impact of those rate reductions, as a condition of receiving universal service support.

OPC argued that the commission does have authority to require the IXCs to provide proof that they have passed through access charge rate reductions, but recommended that the commission delete the proposed access charge rate reductions if it believed it lacked the authority, or if challenged by the IXC industry. OPC recommended incorporating proof of the pass-through in the reports that IXCs are required to make to the TUSF administrator, so that failure to make the pass- through could be considered a failure to make a contribution to the TUSF.

GTE asserted that in a properly constructed universal service plan, the commission would not need to guarantee that access reductions are passed through to end users, and that the market would dictate the proper rate for all services.

On October 23, 1997, MCI filed and on November 7, 1997, AT & T also filed a letter pledging to flow through any access charge reduction that might result from the establishment of the TUSF. On November 7, 1997, MCI, AT & T, and Sprint filed a letter with the commission outlining their commitment to provide meaningful information regarding a showing that the access charge reductions resulting from the establishment of the TUSF are passed through to customers of long distance services.

The commission makes no findings regarding this issue in this proceeding. The commission will address the issue in the compliance proceedings in which the commission determines the forward looking economic cost and the revenue benchmark.

Section 23.147(d)(2)(A) requires that an ETP that is an ILEC electing incentive regulation must show that it will reduce rates of its services in order to avoid receiving a windfall upon the implementation of the THCUSP.

MCI contended that the commission should revise §23.147(d)(2)(A) to require eligible ILECs to reduce access and toll rates before they are eligible to receive THCUSP funding.

The commission agrees with MCI that §23.147(d)(2)(A)(i) should be revised to require that an electing ILEC shall actually reduce rates rather than provide evidence that it will reduce rates. As noted above, the commission revises §23.147(d)(2)(A) and (B) by deleting the reference to reductions to toll and access rates and adding that the reductions should be made to rates as ordered by the commission. The commission believes that because certain electing ILECs will be receiving state high cost support for the first time upon implementation of these rules, that it is imperative that the commission ensure that such ILECs do not receive these funds without reducing rates commensurately.

Section 23.147(e) sets forth the criteria for designating more than one ETP in a service area.

Sprint PCS noted that §23.147(e)(2) and §23.148(e)(2) require the commission to make a public interest finding before designating an additional eligible carrier in an area served by a rural telephone company. Sprint PCS further noted that the FTA additionally requires that additional designations be "consistent with the public interest, convenience, and necessity," then counseled the commission to adopt additional rules specifying the principles it will apply in making these findings, in order to avert expensive and time-consuming litigation by incumbent carriers to protect their position. Sprint PCS recommended creating two presumptions: that consumer choice is in the public interest, and that the deployment of new telecommunications technologies in rural areas is consistent with the public interest, convenience, and necessity; it also offered revisions for this purpose.

TTA pointed out that the proposed rule applies only an undefined "public interest" test in determining whether to designate an additional carrier, and advocated applying the minimum standards of §23.147(c) and expanding the public interest test to include the legislatively mandated criteria for facility-based certificates in areas served by a small or rural ILEC. TTA also opposed Sprint PCS' recommendation for a presumption with respect to the public interest test, opining that the new language would neither sufficiently clarify the test as to reduce litigation, as Sprint had argued, nor would it ensure that the low income, high cost customer that universal service is intended to benefit would indeed benefit.

The commission declines to revise §23.147(e)(2) or §23.148(e)(2) to specify the principles it will apply in making the findings required by these sections. The commission believes that these issues are better addressed in a subsequent proceeding.

Section 23.147(f) addresses the proceedings needed to designate LECs as ETPs. Pursuant to subsection (f)(2)(B) as published, an ETP acquiring exchanges from an unaffiliated provider must file an application to amend its ETP service area to include those exchanges that are eligible for support.

The commission revises §23.147(f)(2)(B) to clarify that the ETP must amend its ETP service area to include those geographic areas that are eligible for support, rather than the exchanges, because the ETP service area may be less than an exchange.

Section 23.147(g) sets forth the requirements for an application for ETP designation and commission processing of the application.

MCI proposed deleting the direct notice provision in §23.147(g)(1)(A). MCI said that LECs, especially ILECs, are already aware of new entrants and do not need direct notice.

The commission agrees that direct notice to all LECs providing service within the service area may be unnecessary in the state certification process. Therefore, the commission revises §23.147(g)(1)(A) to eliminate the mandatory requirement of direct notice to all LECs and to add the requirement that, at a minimum, notice shall be provided in the Texas Register and to state that the presiding officer may require additional notice.

TCG contended that §23.147(g)(1)(B)(i)(II) should be modified, consistent with the terminology in the rest of this section, so that a carrier need only show that it "offers" rather than "provides" federally supported services.

The commission revises the section as requested by TCG in order to achieve consistency with the rest of the section.

SWBT opined that §23.147(g)(1)(B)(i)(IV) needs to be tightened so that carriers cannot manipulate the system by providing one customer with service by their own facilities or unbundled network elements and then can obtain universal service support for customers served by resale.

The commission declines to revise §23.147(g)(1)(B)(i)(IV) as requested by SWBT. The commission notes that this subsection sets forth the criteria for filing for certification as an ETP, and the commission finds that LECs providing service through a combination of their own facilities, which includes the use of purchased UNEs, and resale of another carrier's services are eligible to be certified. An ETP may serve customers in any combination; however, the ETP shall only receive support for lines served other than through total service resale. The commission notes that this section does not set forth the lines for which an ETP may receive support and that §23.133 and §23.134 set forth those requirements.

Section 23.147(h) sets forth the process under which an ETP may relinquish the ETP designation.

TTA questioned whether the commission had the authority to designate a carrier as an ETP in an area if the carrier objected to the designation, and opined that neither PURA nor FTA conferred such authority. To address this problem, TTA recommended revising §23.147(h)(2)(B) to permit designation of a new ETP through the auction process.

The commission revises §23.147(h)(2)(B) to clarify that the commission will designate a new ETP through the auction procedure set forth in §23.147(i).

Section 23.147(i) sets forth an auction procedure for replacing the sole ETP in a service area. The commission asked commenters if, in light of the PURA §54.251(b) requirement that CCN holders have the provider of last resort obligations, it would be necessary for the commission to include in this rule a provision to replace the sole ETP in a service area.

OPC answered yes, it is necessary to include this provision in the rule, hypothesizing that a company could be designated a provider of last resort without also being designated an ETP. OPC argued that at least one entity in each area should be designated as both an ETP and an eligible telecommunications carrier as a matter of public policy, because "it is highly unlikely that universal coverage of the state would be maintained without this support."

SWBT indicated that subsection (i) should be retained since the service areas of CCN holders does not cover the whole state. TTA advised the commission to include proposed §23.147(i) in its rules, noting that PURA requires a CCN holder to provide BLTS throughout its certificated service area. However, TTA noted that an ILEC has the option to seek ETP eligibility and receive TUSF for meeting its responsibility as an ETP. Thus, in TTA's opinion, the CCN holder may or may not be an ETP for an area within its certificated service area, although it is unlikely that a CCN holder would not seek ETP eligibility in its high cost areas. Further, TTA commented that under PURA §54.252(a), the commission may authorize a CCN holder to discontinue or reduce service to an area if it finds that neither the present nor future convenience and necessity will be adversely affected, and that PURA §54.252(b) then authorizes the commission to prescribe the conditions, limitations, and restrictions applicable to such a change in a CCN. TTA noted that the auction procedure contained in the rules provides a mechanism that would permit the commission to designate an entity other than the CCN holder as the ETP for an area if the CCN holder applied to exit a service area or to relinquish its ETP status. TTA voiced its support for the auction procedure, on the grounds that it tended to equalize the playing field for CCN holders and other LECs seeking the benefit of TUSF support. TTA stated that if a non-CCN LEC can get TUSF support but exit the market at will, incentives are created to "game" the TUSF process, but if, on the other hand, any ETP can potentially become the sole ETP in an area, these incentives are reduced.

GTE stated that it does not believe that PURA prohibits an ILEC from relinquishing ETP status in a specific high cost area. GTE further stated that a company can relinquish its ETP designation in a specific high cost area of its service territory without abandoning its COLR responsibilities.

AT & T stated that it is not necessary to include a rule to replace the sole ETP in a service area given the PURA requirements with which providers of last resort must comply. MCI indicated that such a provision would be academic at this time.

The commission agrees with OPC, SWBT, and TTA that §23.147(i) should be retained in the rule and disagrees with AT & T and MCI that this provision is not needed at this time. Further, the commission agrees with GTE that an ILEC can relinquish its ETP status without abandoning its COLR responsibilities. Subsection (i) sets forth a process to allow the sole ETP in an area to relinquish its designation and to allow the commission to designate a new ETP for such area. The commission agrees with TTA that this process could be a first step to allowing an ILEC to exit a service area.

Sprint suggested revising §23.147(i) to prohibit the current ETP from bidding to become the new ETP. Sprint expressed concern that the current sole ETP could withdraw from an area and then be the only or lowest bidder in the auction for that area. In Sprint's opinion this process would simply raise the amount of support to the current ETP. Sprint argued that an ETP may use the system to its benefit by maintaining the competitive advantage it already controls by virtue of the infrastructure it already has in place in high cost areas. TCG also argued that a LEC that has sought to relinquish its ETP designation when it is the sole ETP should be disqualified from bidding to be the ETP in the relinquished area. In its reply comments, TTA advocated rejecting Sprint's proposal to revise the rule to prohibit the current ETP from bidding to become the new ETP. TTA argued that no incumbent ETP would exit a service area where it holds a competitive advantage, as Sprint hypothesized.

The commission does not revise subsection (i) as suggested by Sprint and TCG to prohibit the current ETP from bidding to become the new ETP. However, the commission recognizes the concerns raised by Sprint and TCG. If the situation occurs where an existing sole ETP, who is also a CCN holder with COLR responsibilities, desires to withdraw from an area the commission will consider the concerns raised.

Section 23.148 sets forth the requirements for designation of common carriers as eligible telecommunications carriers to receive federal universal service funds.

Section 23.148(c) sets forth the criteria for determination of eligible telecommunications carriers, and subsection (d) sets forth the criteria for determination of receipt of federal universal service support.

TSTCI commented that proposed §23.148(d)(2) defines eligible telecommunications carriers for the purposes of §23.142, and implies that offering Lifeline service is a prerequisite for becoming an eligible telecommunications carrier. However, TSTCI notes that federal universal service fund eligibility is based on offering the services set out by 47 C.F.R. §54.201, which does not include Lifeline. TSTCI recommended amending the rule to clarify that while eligible telecommunications carriers must offer Lifeline and Link Up services, such offerings are not a prerequisite for being certified as an eligible telecommunications carrier.

The commission declines to make the changes requested by TSTCI because the commission believes that the section does not need clarification. Section 23.148(c), which sets forth the criteria for determination of eligible telecommunications carriers, does not require that a common carrier offer Lifeline Service in order to be eligible to receive federal universal service support. Section 23.148(d), which sets forth the criteria for determination of receipt of federal universal service support, does require a common carrier to provide Lifeline Service before such common carrier may receive federal universal service support. Further, the commission notes that as a practical matter, a common carrier must satisfy the requirements of both subsections (c) and (d) before it may receive federal universal service support.

TTA noted that there were motions for reconsideration pending before the FCC with respect to the current federal Lifeline program toll control requirements as set forth in subsection (d), and recommended close monitoring of the proposed provision in the event that the FCC modifies its rules with respect to toll control.

The commission will monitor the developments at the FCC regarding this issue and will review the necessity for revisions to this section.

TTA advocated consistency with proposed §23.142(d)(1)(B)(ii) of the Lifeline rule, which permits waiver of the toll limitation requirements, and recommended amending §23.148(d)(3) and (g)(1)(C)(iii) to accomplish this result.

The commission finds it unnecessary to make the revisions requested by TTA because this section is consistent with §23.142. Section 23.142(d)(1)(B)(ii) allows a waiver to the toll limitation requirements that is consistent with the federal requirements. Sections §23.148(d)(3) and (g)(1)(C)(iii) refer to 47 C.F.R. §54.400, regarding terms and conditions, and §54.401, defining Lifeline. Section 54.401(3) includes in Lifeline service the services enumerated in §54.101(a)(1)-(9), and toll limitation is included in this list. Section 54.101(c) sets forth requirements for waivers to the provision of certain services enumerated in §54.101(a)(1)-(9), including toll limitation. The commission determines that the waiver provision provided in the federal regulations referenced in this section is consistent with the waiver provided in §23.142(d)(1)(B)(ii); therefore, the commission does not revise this section.

TTA also advocated consistency with proposed §23.142(d)(1)(C)(ii) of the Lifeline rule, which permits waiver of the prohibition on disconnection of service for non-payment of toll charges, and recommended amending §23.148(g)(2)(E) to accomplish this result.

The commission finds it unnecessary to make the revisions requested by TTA because this section is consistent with §23.142. Section 23.142(d)(1)(C)(ii) allows for a waiver of the prohibition on disconnection of service for non-payment of toll charges. Subsections (d)(3) and (g)(1)(C)(iii) refer to 47 C.F.R. §54.400, regarding terms and conditions, and §54.401, defining Lifeline. Section 54.401(b) specifically sets forth the requirements for a waiver of the requirement that an eligible telecommunications carrier may not disconnect a Lifeline customer for non-payment of toll charges. The commission determines that the waiver provision provided in the federal regulations referenced in this section is consistent with the waiver provided in §23.142(d)(1)(C)(ii); therefore, the commission does not revise this section.

TSTCI opines that while all small companies will be required to offer both Lifeline and Link Up to maintain their interstate revenue streams, the issue of certifying all ILECs by January 1, 1998 is crucial to enable them to maintain without interruption their revenue streams from federal USF support and the National Exchange Carriers Association (NECA) carrier common line pool. TSTCI encouraged the commission to approve proposed §23.142 and §23.148 as soon as possible. TSTCI urged the commission to implement a procedure whereby the ILECs can obtain interim certification as eligible carriers and approve any required Lifeline and Link Up Service tariffs by January 1, 1998, since any delay would jeopardize the small companies' entire interstate revenue stream. TSTCI offered to assist in this pursuit.

JSI urged the commission to act promptly on applications for designation as an eligible telecommunications carrier, since federal rules require certification of eligibility in order to receive federal universal service funds beginning January 1, 1998, and FUSF revenues represent a sizable portion (up to 20%) of ILECs' total operating revenues.

The commission declines to adopt §23.142 and §23.148 prior to the adoption of the other sections regarding universal service issues. The commission recognizes the importance of certifying carriers as eligible telecommunications carriers by January 1, 1998; therefore, the commission's ORA initiated Docket No. 18100 in order to timely address the issue.

Section 23.148(f) addresses the proceedings needed to designate common carriers as eligible telecommunications carriers. Pursuant to subsection (f)(2)(B) as published, an eligible telecommunications carrier acquiring exchanges from an unaffiliated carrier must file an application to amend its eligible telecommunications carrier service area to include those exchanges that are eligible for support.

The commission revises §23.148(f)(2)(B) to clarify that the eligible telecommunications carrier must amend its service area to include those geographic areas that are eligible for support, rather than the exchanges, because the eligible telecommunications carrier service area may be less than an exchange.

Section 23.148(g) sets forth the application requirements and commission processing of applications.

MCI recommended the elimination of the newspaper notice provision in §23.148(g)(1)(A) because the public will not affect the certification process; therefore, this publishing cost is unnecessary for the certification process. In its reply comments, Sprint agreed with MCI that newspaper notice of an ETP's applications for eligibility to receive federal universal service support should not be required. Sprint further commented that newspaper notice is costly and time- consuming and unlikely to result in any meaningful comments or participation by the public, and that newspaper notice is not required for an application for ETP designation under §23.147(d), so there is no compelling reason to treat a federal universal service application differently. Sprint also stated that Texas Register notice should be sufficient and that, at the very least, newspaper notice should not be required of ILECs who already receive federal support.

The commission agrees that newspaper notice may be unnecessary in the federal certification process. Therefore, the commission revises §23.148(g)(1)(A) to eliminate the mandatory requirement of publishing newspaper notice, and to add the requirement that, at a minimum, notice shall be provided in the Texas Register and to state that the presiding officer may require additional notice.

Section 23.148(h) sets forth the requirements for designation of eligible telecommunications carriers for unserved areas.

TTA opined that neither FTA nor PURA authorized the commission to require a carrier to serve an area involuntarily, and recommended deleting §23.148(h) accordingly. GTE stated that §23.148(h) is beyond the commission's jurisdictional powers and recommended using the auction procedure described in §23.147(i). TTA also advised using the auction procedure under proposed §23.147(i) when an eligible telecommunications carrier that is the sole eligible telecommunications carrier relinquishes its status.

TCG supported the subsection stating that designation of the carrier "best able" to serve an unserved area as provided in proposed §23.148(h) is appropriate.

The commission declines to revise the section as requested by TTA and GTE. The commission agrees with TCG and finds that the Act §214(e)(3), as amended, requires a state commission, with respect to intrastate services, to determine which common carrier or common carriers are best able to serve.

Section 23.150 sets forth how the Texas universal service fund is to be administered.

Commenters provided the following general remarks concerning §23.150. TTA stated that §23.150 should be revised to recognize that TECA will oversee the winding up of the affairs of the toll pool. TTA also stated that §23.150 did not fully address obligations with respect to prior periods, and that the rule failed to address how any interim per-line support will be adjusted to require all carriers to maintain records of interim assessments and disbursements.

The commission declines to make the revision suggested by TTA. The existing support flows from the toll pool will be continued until implementation of the new TUSF. After the implementation of the new TUSF, the TUSF Administrator under supervision of the commission, will address the disposition of prior period obligations and interim TUSF support issues.

Section 23.150(d) sets forth the technical requirements for and duties of the TUSF administrator.

Some of the commenters opined on the qualifications and preferred level of neutrality for the TUSF Administrator.

Regarding §23.150(d)(1)(A), SWBT stated that the rule should permit selection of any entity whose board of directors reflects the composition of the telecommunications industry as a whole and has no greater than 50% of the board composed of ILECs, as such an entity would meet the criteria of not having a direct financial interest.

TTA noted that the requirement that the commission use a competitive bid process to select the administrator would require a bidding process even if the commission preferred to appoint an industry- representative entity as administrator.

In its reply comments, MCI urged the commission to reject TTA's and SWBT's suggestions to modify the eligibility requirements for the Texas USF administrator because the administrator must be, in fact and in appearance, impartial and neutral to all concerned.

AT & T stated its belief that the best interest of the public can only be served by having a truly impartial USF administrator. AT & T further commented that any entity that receives a substantial direct or indirect pecuniary interest, such as an entity that receives its operating support from dues paid by USF eligible members, should be disqualified.

In its reply comments, TTA urged rejection of AT & T's proposed restriction on the administrator, and reiterated its recommendation that the rule be revised to permit (1) existing TECA staff, under the commission's direct supervision, to serve as interim administrator; and (2) an association which is representative of all telecommunications providers to serve as administrator. This latter entity, TTA opined, could be funded by the TUSF, not by dues, as AT & T suggested.

TCG commented that the TUSF administrator should be neutral but did not believe that TECA, regardless of the composition of its board, can be neutral.

The commission agrees that the public interest will be best served with a truly neutral and impartial administrator. Because the plain meaning of the proposed rule will ensure that the TUSF administrator has no reasonable conflicts of interest which might impair the administrator's ability to manage the TUSF in an equitable and pro-competitive manner, the commission makes no changes in response to the comments. The commission notes TTA's concerns about appointing an administrator, but the rule is designed to protect against unfair biases in the selection of the administrator and the commission believes that a competitive bid process is appropriate for accomplishing this goal.

Some of the commenters made suggestions on the appropriate level of financial interest the TUSF administrator should possess.

Noting that proposed §23.150 required the USF administrator to have no "direct financial interest in the universal service support mechanisms established by the commission," TTA hypothesized that this language may be interpreted to preclude an entity similar to the Electric Reliability Counsel of Texas (ERCOT) independent system operator (ISO) from serving as USF administrator. TTA suggested revisions to the section consistent with its recommendation.

AT & T stated that it was proper for an accounting firm to manage the TUSF by conducting incidental audits, but that, no industry associations should be allowed any role in managing the TUSF. AT & T said that the rule as drafted allowed people with indirect pecuniary interests to serve as the administrator. AT & T and TCG contended that it would be best if only a person with no financial interests could be administrator for the TUSF. AT & T urged the commission to reject TTA's proposed modification of the administration of the USF. AT & T indicated that TTA's recommendation would allow those with a financial interest to be a part of the USF administration.

The commission does not modify §23.150(d) based upon the comments. The commission believes that the requirements of subsection (d) appropriately ensure the neutrality of the administrator. The commission will solicit bids through the request for proposal (RFP) process during the first quarter of 1998 and determine which bidder can best meet the requirements set forth in subsection (d).

Section 23.150(f)(2) sets forth the determination of the amount needed to fund the TUSF.

The commission clarifies §23.150(f)(2)(A) so that the commission may delegate the initial determination to the TUSF administrator.

Section 23.150(g) of the proposed rule governs how contributions to the TUSF will be assessed.

Some commenters discussed whether CMRS providers are exempt from TUSF assessments.

PrimeCo objected to the subsection (g) requirement that CMRS carriers contribute to the TUSF, arguing that such requirement contravened the Act §332(c)(3), as amended, which subjects CMRS carriers to state universal service support obligations only when the services offered are a "substitute for land line telephone exchange service for a substantial portion of the communications within such State." PrimeCo declared that its services did not meet this condition. PrimeCo further asserted that the FCC erred in its determination that the Act §332(c)(3), as amended, "does not preclude states from requiring CMRS providers to contribute to state support mechanisms," and exhorted the commission not to rely on it, but to construe the proposed rules according to Congressional intent. In its reply comments, PrimeCo argued that the commission should reject the reasoning in Pittencrieff and declare that CMRS providers may not be assessed the TUSF surcharge.

Regarding PrimeCo's argument that the requirement that CMRS providers contribute to the TUSF is unlawful, SWBT stated in its reply comments that PrimeCo's reading of the Act §332, as amended, is wrong. According to SWBT, Congress intended to ensure that the exemption from state rate regulation and entry given CMRS providers was not intended to relieve them of their universal service obligations, and the FCC's Report and Order is consistent with this construction. GTE agreed that wireless carriers should not be exempt from contributing to the maintenance of universal service and that this issue was laid to rest by the FCC's recent Memorandum Opinion and Order In the Matter of Petition of Pittencrieff Communications, Inc. for Declaratory Ruling, FCC 97-343 (Released October 2, 1997).

The commission makes no changes to the section based upon the comments. The commission believes that CMRS providers, as telecommunications providers, are required by PURA §56.002 to contribute to the TUSF. The commission notes the FCC's Memorandum Opinion and Order in Federal Docket No. WTB/POL 96-2, FCC 97-343, In the Matter of Petition of Pittencrieff Communications, Inc. for Declaratory Ruling Regarding Preemption of the Texas Public Utility Regulatory Act of 1995. In this Opinion, the FCC stated that requiring "...CMRS providers to contribute on an equitable and nondiscriminatory basis to state universal service support mechanisms falls within a state's lawful authority and therefore falls within the 'other terms and conditions' language of section 332(c)(3)(A) of the Communications Act of 1934, as amended (1934 Act) (parenthetical added)." Id . The FCC in Pittencrieff harmonized two apparently conflicting sections, the Act §332(c)(3) and FTA §254(f). Section 332(c)(3) prohibited States from regulating CMRS rates and entry, but it did allow states to regulate the terms and conditions under which CMRS is provided. Section 254(f) mandated that every telecommunications provider that provides telecommunications services shall contribute to the State's universal service fund. The FCC harmonized the two sections by holding that the universal service requirements are a part of the terms and conditions to provide CMRS service in the state. Using this logic, the FCC then ruled that PURA95 §3.606 and §3.608 were not preempted by the Act §332(c)(3). The commission concurs with the FCC's reasoning and holding in Pittencrieff.

Section 23.150(g)(1) specifies that all telecommunications providers "having access to the customer base" shall pay the TUSF assessments.

TCG wanted the phrase "having access to the customer base" defined. In its reply comments, SWBT responded to TCG's complaint that the phrase "having access to the customer base" is not understandable. SWBT indicated that it is not necessary for the commission to explain this phrase because it is in PURA §56.022 and is a phrase of long-standing existence.

The commission does not revise §23.150(g)(1) in response to the comments. The commission interprets PURA §56.022 to require that all telecommunications providers, including CMRS providers (see Pittencrieff discussion supra) furnishing telecommunication service in Texas, must pay the TUSF assessment.

Section 23.150(g)(2) delineates the basis for assessing TUSF payments.

TCG opposed §23.150(g)(2), which uses taxable telecommunication receipts as the basis for assessing service contributions, because it assesses revenues twice for universal service purposes. TCG proposed that carriers should contribute on the basis of their intrastate revenue less payments made to other carriers, or on the basis of their revenue from intrastate end-user services. In its reply comments, SWBT stated that the commission should retain the recommended taxable telecommunications receipts because they are based on a known standard and are fair to all carriers. SWBT argued that there is no inefficient double taxation as TCG argues.

The commission does not revise §23.150(g)(2) because the commission believes that taxable telecommunications receipts are the appropriate basis for the universal service assessment. Taxable telecommunications receipts are already used for the Texas Infrastructure Fund (TIF); therefore, it is administratively efficient to use that basis for the new TUSF. The commission believes that double assessments to the TUSF will not occur using taxable telecommunications receipts as the basis for the assessment. Taxable telecommunications receipts do not include receipts from the sale of wholesale services; therefore, a provider that sells wholesale service would not pay the TUSF assessment on such receipts. The provider that purchases the wholesale service and then sells such service to an end-user customer would pay the TUSF assessment. Accordingly, there is no double assessment as suggested by TCG.

MCI recommended that the commission revise the due date for reporting taxable receipts for calendar year 1997 in §23.150(g)(4)(A). MCI noted that this due date is before such receipts are due for the sales tax and TIF, and that for administrative convenience, the deadline should be February 15, 1998. TTA also noted that the deadline for filing the initial report with the TUSF administrator "within 30 days of the effective date" could conceivably occur before January 31, 1998, which is when the data necessary to make the filing become available.

The commission, in an effort not to impose unreasonable administrative burdens, revises the date to February 15, 1998. The commission believes that the revised deadline will allow telecommunications providers the required time to gather the necessary information.

Section 23.150(g)(5) addresses the recovery of the TUSF assessment and allows a telecommunications provider to recover the amount of its TUSF assessment from its retail customers.

The commission sought specific comment regarding allowing telecommunications providers to pass the TUSF assessment through to all retail customers in the form of a surcharge on the retail customers' bills. The commission asked whether, as a matter of policy, telecommunications providers should be permitted to apply the surcharge to basic local telecommunications services, i.e. basic network services, or more narrowly, to primary flat-rate residential lines, and if so, whether the basis of assessment should be correspondingly adjusted.

Some commenters suggested that the commission prohibit TUSF assessments through a surcharge to retail end users. Other commenters agreed that assessments to end users should be allowed, but differed as to whether such assessments should be based upon all revenues, upon all revenues excluding BLTS, or upon all revenues excluding Lifeline, Link-up, Tel-Assistance, and Prepaid Local Telephone services. Many commenters suggested that the only appropriate surcharge mechanism is a percentage based surcharge.

As discussed below, in response to the comments, the commission revises §23.150(g)(5) to require a percentage based surcharge on all retail customers except Lifeline, Link Up, and Tel-Assistance customers.

Several of the commenters remarked on the propriety of applying a surcharge to recover TUSF costs.

CU argued that the fairest collection mechanism was to require telecommunications providers to treat the assessment as any other cost of doing business, and not permit them to pass it directly through to retail customers.

OPC urged the commission to prohibit surcharges, which it defined as a fixed monthly charge that must be paid in order to obtain telephone service, entirely on several grounds: (1) as a matter of public policy, carriers benefit from universal service and should share in its support; (2) imposing costs on end users frustrates the universal service policy by raising the fixed monthly bill; (3) FTA §254(d) and (f) make no provision for recovery of USF contributions by a line item surcharge, and are quite clear that it is the carrier who must contribute; and (4) PURA §56.022(a) also requires that providers pay for universal service. OPC recommended that, as a matter of public policy, all providers should be assessed a fair share of the costs of universal service, and should be allowed to decide how to recover the assessment, e.g., usage charges, customer charges, or not at all.

SWBT stated that CU's and OPC's argument that the USF assessment should be treated as any other cost of business may sound worthy in the abstract, but in reality is a way to harm the ILECs who remain subject to various forms of regulation to which their competitors are not subject. SWBT asserted that the effect of CU's and OPC's argument would be to permit CLECs to assess a surcharge or raise their rates but then preclude ILECs from recovery. SWBT stated that it believes that it is appropriate to permit telecommunications providers to decide if they wish to surcharge their customers to recover the USF assessment.

GTE deemed without merit OPC's contention that a surcharge should not be allowed and that the market should dictate where and whether the carrier recovers its assessment. GTE commented that the commission has the authority to allow the surcharge and cited PURA §58.061 and paragraph 855 of the Report and Order.

PrimeCo declared that it agreed with the rule as proposed. PrimeCo supported requiring that the TUSF surcharge be explicitly identified as such on customer bills. PrimeCo also said that the cost of supporting universal services should be borne by the broadest possible portion of the general public. In its reply comments, PrimeCo stated that the commission is in danger of violating an ILEC's First Amendment rights if it prohibits a surcharge. PrimeCo argued that denying an ILEC the right to implement a surcharge is equivalent to controlling the content of their bills. PrimeCo stated that a business' right to commercial speech is protected by the First Amendment. PrimeCo averred that no compelling state interest would be furthered by prohibiting the use of an explicit surcharge. PrimeCo argued that hiding the amount that any individual customer is contributing to the TUSF hardly seems to be a useful goal. PrimeCo allowed that the commission may require that any surcharge be presented in an accurate and non-misleading manner, and that the commission may even determine that the surcharge cannot be applied to some services, e.g., Tel-Assistance, if it reasonably concludes that this direct action furthers the goal of universal service. PrimeCo observed that the reality of the situation is that every telecommunications provider will treat contribution to the TUSF as a cost of doing business and will pass this cost on to customers.

The commission declines to revise §23.150(g)(5) in response to the comments. The commission does not consider a surcharge to be contrary to the principle of universal service or incompatible with the concept of affordable basic rates. The commission's authority to allow a surcharge is provided by PURA §58.022 and §58.061. Although the commission has the authority to mandate inclusion of a TUSF surcharge on end users, the commission declines to impose this requirement and will allow telecommunications providers to determine whether a TUSF surcharge should be imposed on their retail customers.

In response to OPC's comments, the commission disagrees with OPC's definition of "surcharge," and the commission interprets OPC's comments to state that OPC would disagree with a "surcharge" only if it is a fixed monthly fee. The commission believes that the term "surcharge" can refer to a percentage based charge to the end user, not just to a fixed monthly fee. In response to OPC's comments, the commission revises §23.150(g)(5) as discussed below to require telecommunications providers that elect to surcharge end users to do so on a percentage basis, not a fixed monthly fee basis. The commission agrees with OPC that a telecommunications provider should be allowed to decide whether to recover the TUSF assessment or not and the commission believes that the section reflects this position.

Because the commission does not prohibit a surcharge, PrimeCo's argument about abridging an ILEC's First Amendment Free Speech rights is moot. The commission agrees with PrimeCo that the commission may mandate that the surcharge be presented in an accurate and non-misleading manner. Section 23.150(g)(5)(A)(i) requires telecommunications providers choosing to surcharge their retail customers to list the surcharge on the retail customers' bill as "the universal service fund surcharge."

GTE asserted that the best recovery mechanism would be a mandatory surcharge on all retail telecommunications services. GTE said that if the application of the surcharge is to be optional, then each carrier must be allowed the ability to apply the surcharge to all of its services, including basic network services.

Sprint argued that in order for the rule to be competitively neutral it should require providers to surcharge its customers and add the surcharge to the retail customer's bill in an explicit manner. Sprint argued that absent such a requirement there may be a competitive disadvantage to those companies that do pass the charge through to the end-user compared with those who do not.

Although the commission has the authority to mandate inclusion of a TUSF surcharge on end users, the commission declines to impose this requirement and will allow telecommunications providers to determine whether a TUSF surcharge should be imposed on its retail customers. The commission believes that a telecommunications provider should be allowed to decide whether to recover the TUSF assessment or not. The commission believes that this approach is competitively neutral because each telecommunications provider may choose for itself what it wishes to do about the recovery of the TUSF assessment. Each telecommunications provider is free to respond to the competitive market.

AT & T stated that a surcharge for TUSF should apply to all retail services, yet if the commission decides to exempt residential lines or exclude Basic Network Services, then the commission should be vigilant against allowing double assessments to be made.

MCI argued that the commission should prohibit LECs from assessing universal service support surcharges on non-retail customers for non-retail related services like UNE, resale, and access charges.

PrimeCo argued against exempting so broad a category as subscribers to Basic Network Services, or primary, flat-rate residential lines, asserting that there was no common attribute, such as income level, that distinguished these subscribers from any other, and would make them deserving of special treatment. PrimeCo stated that if any services are exempted from bearing a part of this cost, the obvious impact is that the non-exempt services will bear more than they otherwise would. PrimeCo commented that the burden of funding TUSF would be shifted to just those subscribers who use non-exempt services and, to a considerable extent, will be shifted away from the ILECs' subscribers and onto customers of other providers, including paging, mobile, and other wireless services. PrimeCo said that this shifting violates the competitive neutrality principle. PrimeCo stated that the better course is to establish a broad base of contributors and a narrow list of services to be supported so that each individual's contribution is as low as possible. PrimeCo suggested that the only conceivable exemption would be recipients of targeted subsidies, such as Lifeline customers. Sprint proposed that eligible Lifeline, Link Up, and Tel-Assistance customers not be required to pay the surcharge.

GTE argued that if the surcharge is not allowed to be applied against all services equally yet the assessment base remains the same, the plan will fail to achieve competitive neutrality. GTE argued that companies with higher proportions of basic customers will have to charge a greater percentage surcharge against their remaining revenue base, placing them at a competitive disadvantage. GTE surmised that even if the assessment base is adjusted to also exclude basic services, carriers will still face a competitive disadvantage in that companies not price-regulated by the commission can allocate their assessment at will while ILECs must spread the surcharge as directed by the commission.

Referencing GTE's comments, Sprint stated that the effect of excluding residential flat rate lines from assessment and the calculation of carriers' contribution is to shift more of the burden on other services, e.g. toll and vertical services. Sprint said that in addition to defeating the purpose of the TUSF in making support for BLTS explicit, the loading of increased burdens on other services is inequitable and competitively unfair. Sprint opined that providers of those services and their customers will have to carry the increased load, to the advantage of ILECs who provide the excluded residential local service. Consequently, Sprint argued that residential local service should not be excluded from the surcharge assessment or calculation of carrier obligations if all customers and service providers are to be treated in an equitable and competitively neutral manner.

TTA stated that the commission should not prohibit telecommunications providers from applying the surcharge to BLTS, on the grounds that such a policy would be applied only to providers whose rates are regulated by the commission. TTA argued that all non-regulated providers have the option of applying or not applying a surcharge to any of their services, and that such a result was inequitable. TTA also surmised that exclusion of a retail telecommunications service from the surcharge would place an increased burden on remaining services. TTA observed that, for example, if BLTS was excluded from the surcharge, an ILEC would only be allowed to surcharge competitive services to recover its TUSF assessment. TTA argued that such a plan would not be competitively neutral, since the non-regulated providers would be unrestricted in how they could allocate their assessment recovery. TTA reasoned that if the commission were to order the ILECs to exclude certain services from the surcharge, those same services must also be excluded from the TUSF assessment base in order to maintain competitive neutrality. In its reply comments, TTA concurred with the majority of commenters that the surcharge should be applied to all retail revenues included in the TUSF assessment base. If Lifeline and Tel-Assistance services are excluded from the surcharge, TTA recommended (1) that the amount of surcharge that would have been collected from these services be reimbursable from the fund and (2) that the corresponding cost amount be reported to the administrator so that the percentage assessment can be calculated and applied uniformly among all telecommunications providers.

SWBT stated that it would not object to excluding residential flat rate lines from the assessment if an adjustment was also made to the assessment base. SWBT restated its position that if the commission decides not to surcharge basic services, then in order to maintain competitive neutrality, the basis of assessment to telecommunications providers should also be changed to omit basic service revenues.

Sprint suggested that customers eligible for Lifeline, Link Up, and Tel-Assistance should be excluded to ensure that the goals of those programs are met.

CU argued that a surcharge on BLTS amounted to a basic service rate increase and that such an increase was antagonistic to the public policy goal of affordability. CU further argued that it was senseless to surcharge the basic service rate, since basic service was intended to be the "supported" service. CU commented that, if a surcharge was applied to BLTS while toll and access charges were reduced, the majority of residential ratepayers are not likely to see a neutral outcome in their bills.

CEJ argued that, because the goal of universal service was to make basic service more available and affordable, the TUSF assessment surcharge should not apply to basic local service. CEJ also asserted that at the very least the TUSF surcharge should not apply to Lifeline, Link Up, Tel- Assistance, and prepaid local service under §23.40 (relating to Prepaid Local Telephone Service), since these services were created for customers identified as having an affordability problem.

In its reply comments, SWBT stated that CU's argument that the surcharge on basic service revenues runs counter to the public policy of affordable rates ignores the public policy that all who can afford to should support universal service. SWBT argued that the commission's plan adequately deals with the question of low income customers through Lifeline, Link Up, and Tel-Assistance. SWBT stated that there is no evidence that surcharging basic service customers will make local service anything other than affordable.

GTE responded to CU and CEJ's assertion that a surcharge on basic service is contrary to the universal service principle that basic service rates should be affordable. GTE pointed out that through PURA §56.021 and §58.061, it does not appear that the Texas Legislature views universal service charges as conflicting with the idea of affordable basic services. In its reply comments, GTE opposed CEJ's proposal that the surcharge not be applied against Lifeline, Link Up, Tel-Assistance, or prepaid local telephone service. GTE indicated that this proposal was administratively burdensome and unnecessary. GTE stated that if the commission chose to exclude a class of customers the lost support from these customers must be made up from the fund on a nondiscriminatory basis.

The commission finds that, if a telecommunications provider elects to assess a TUSF surcharge, such surcharge should apply to all retail services except Lifeline, Link-up, and Tel-Assistance services, and revises §23.150(g)(5) accordingly. The commission finds that, pursuant to PURA §56.021 and §58.061, a TUSF charge may not grant an unreasonable preference or advantage to a telecommunications provider or subject a telecommunications provider to unreasonable prejudice or disadvantage. Therefore, the commission finds that the surcharge assessment to retail customers must apply to all services to prevent any anti-competitive effects. However, the commission finds that, because Lifeline, Link-up, and Tel-Assistance services are a small portion of telecommunications services provided, no anti-competitive effects will result from exempting these services.

The commission rejects the suggestion to except Prepaid Local Telephone Service customers from paying the surcharge because such customers have not shown that they qualify for one of the low-income assistance programs.

The commission believes that the administrative issues for the telecommunications providers arising by exempting these customers are offset by the public interest aspect of ensuring that qualifying low-income customers have affordable telephone service. The commission disagrees with TTA's recommendation that if Lifeline and Tel-Assistance services are excluded from the surcharge, (1) the amount of surcharge that would have been collected from these services should be reimbursable from the fund, and (2) the corresponding cost amount should be reported to the administrator so that the percentage assessment can be calculated and applied uniformly among all telecommunications providers. The commission finds that the administrative burden for the TUSF administrator to implement TTA's suggestions would overshadow the amount of surcharge that would have been collected by the telecommunications providers but for this exemption. The commission further notes that the TUSF administration costs must be paid from the TUSF and, therefore, paid by the telecommunications providers themselves.

The commission also rejects the arguments that BLTS should not be assessed the TUSF surcharge. The commission believes that assessing all retail services except Lifeline, Link Up, and Tel-Assistance fairly treats all customers because all customers will be assessed the surcharge on the same basis. The commission notes that §23.147 sets forth requirements for an ILEC-ETP to reduce rates as determined appropriate by the commission in exchange for the THCUSP receipts. As a result, the commission finds that while a customer may be assessed a surcharge, the customer may also experience reductions in rates for other services to which that customer subscribes. The commission notes that, depending on the different services to which a customer subscribes, it is possible that individual customers may experience an overall decrease in their bills. However, any increased charges to the general body of customers will be offset by reductions in other charges. Further, low-income customers are protected by the various programs for which they qualify. And, as discussed above, the commission finds that, in order to maintain competitive neutrality under PURA, all services must be assessed the surcharge. The commission also finds that, because PURA requires assessments on BLTS, assessing BLTS does not impair the universal service policies of providing affordable service.

The commission is persuaded by the comments that if BLTS is exempted from the surcharge assessment, various anti-competitive effects may result, such as non-exempt services provided by both non-regulated providers and regulated providers bearing a larger burden than they otherwise would bear. The commission finds that, pursuant to PURA §56.021 and §58.061, a TUSF charge may not grant an unreasonable preference or advantage to a telecommunications provider or subject a telecommunications provide to unreasonable prejudice or disadvantage. Therefore, the commission finds that the surcharge assessment must apply to BLTS to prevent any anti-competitive effects.

Because the commission does not exempt BLTS from the TUSF surcharge assessment, the commission need not revise the section to adjust the basis of the assessment to omit BLTS.

The commission specifically sought comment on the equity of a percentage-based surcharge. A number of commenters remarked on the desirability of using a percentage-based surcharge to pay for the TUSF.

TTA, AT & T, GTE, MCI, Sprint, SWBT and CU indicated support for a percentage-based surcharge. OPC commented that if the commission adopted a surcharge, the surcharge should be percentage-based.

TTA counseled the commission to establish a uniform surcharge, and define it as a percentage charge on all retail services. TTA stated that the most equitable and competitively neutral method of TUSF recovery is to establish a percentage surcharge on each dollar of retail revenue included in the TUSF assessment base. TTA surmised that no one group of retail customers would be adversely affected as compared to another, as could easily result with any other surcharge mechanism. TTA commented that the percentage surcharge is competitively neutral, efficient, and automatic, requiring a minimum of resources to administer.

AT & T reasoned that a percentage based surcharge on retail services is equitable.

GTE stated that an automatic end-user percentage surcharge will ensure that each carrier's fund obligations are recovered from all services and all end-users in an even-handed, competitively neutral fashion.

MCI affirmed that a percentage based surcharge on retail services is reasonable since it would be consumption based, like the sales tax.

Sprint argued that a requirement that contributions be recovered through an equal percentage surcharge is the best way to ensure that the principle of explicit and competitively neutral funding is met.

SWBT stated that the most equitable and competitively neutral method of TUSF recovery is to establish a percentage surcharge on each dollar of retail revenue as defined in the rule.

Of the surcharge options, CU opined that the flat rate surcharge was the most regressive and constituted most directly a basic rate increase. CU stated that it would be fairer to base the surcharge on a percentage calculation which excluded basic service.

If a surcharge is adopted, OPC recommended that it be based on a percentage mark-up of non- basic services. OPC reasoned that allowing it to be assessed on basic service rates, thereby raising them, undermined the purpose of the USF--to make basic service affordable.

The commission agrees with the commenters that a percentage-based surcharge is the most appropriate method for a telecommunications provider to recover the amount of its TUSF assessment from its retail customers. The commission finds that, if a telecommunications provider elects to assess a TUSF surcharge, this approach is the most equitable for customers because customers pay according to the amount of telecommunications services that they use. The commission is persuaded that a flat-rate surcharge would not be equitable because each customer would pay the same amount regardless of the amount of telecommunications services purchased. The commission also believes that this method is competitively neutral for telecommunications providers because each provider is treated in the same manner as another. Section 23.150(g)(5) is revised to require that a telecommunications provider electing to surcharge its retail customers does so using a percentage-based assessment applied to the retail customers' bills. The telecommunications provider shall not discriminate with respect to this surcharge. If the telecommunications provider chooses to surcharge its customers, such telecommunications provider shall assess all of its retail customers, except the exempted customers as discussed above, the same percentage surcharge.

TTA argued that the surcharge percentage should be updated periodically by the TUSF administrator and provided to the assessed telecommunications providers. TTA suggested that this would permit each telecommunications provider to collect the surcharge and remit it to the administrator as its assessment, much like sales tax is done currently. TTA reasoned that an approved percentage surcharge would treat all customers and providers alike.

The commission agrees that the TUSF Administrator should have the responsibility of updating the surcharge percentage.

TTA recommended that the surcharge be defined as a uniform surcharge in order to avoid the necessity of a commission proceeding for each telecommunications provider seeking to recover its assessment. TTA also indicated that the commission should provide a presumption of reasonableness for a surcharge in the same percentage as the assessment percentage determined by the administrator.

The commission declines to revise the section in response to TTA's comment. The commission finds that it is appropriate for the commission to review the surcharge mechanism used by each telecommunications provider. The commission notes that as a legal matter ILECs may not charge rates that are not in their tariffs.

TTA also recommended deleting §23.150(g)(5)(D), which permits a carrier to recover the assessment through a one-time annual lump sum surcharge, on the grounds that customers are not likely to prepare for this one-time event.

The commission agrees with TTA's evaluation that a one-time annual lump sum surcharge is not appropriate and revises §23.150(g)(5)(D) to require that the surcharge be made on a monthly basis.

AT & T commented that the surcharge should be applied as a percentage of Yellow Page revenues as well as retail, non-basic end-user services, including non-primary residential lines, multi-line business services, toll, and discretionary services. In its reply comments, SWBT labeled AT & T's suggestion that Yellow Pages revenues be assessed for the USF surcharge as a cynical effort at competitive non-neutrality. SWBT stated that by imposing the surcharge on revenues which it has and AT & T does not, AT & T would gain an advantage in the competitive marketplace. SWBT stated that no statutory authority exists for the imposition of an assessment on Yellow Pages revenues. SWBT noted that PURA §51.002(10) does not include any reference to publishers of Yellow Pages. SWBT opined that consideration of AT & T's proposal would be equivalent to assessing the revenues of other lines of business that AT & Tis in, such as international long distance services. TTA opposed applying the surcharge to Yellow Page revenues on the basis that these revenues were not "taxable telecommunications receipts" for TIF assessment purposes, nor were they "services," as defined by PURA §11.003(18), over which the commission has jurisdiction.

The commission declines to revise the subsection as proposed by AT & T. The commission finds that, at this time, assessing Yellow Pages revenues is inappropriate because Yellow Page revenues are not the revenues of a telecommunications provider.

Section 23.150(h)(3) addresses the timing of the disbursements from TUSF.

GTE maintained that the disbursement of funds should be made on a monthly basis rather than every 60 days.

The commission accepts GTE's proposed change to the deadline.

Section 23.150(k) addresses the treatment of proprietary information.

TCG commented on the appropriate level of confidentiality to be accorded supporting documentation for the TUSF assessments. TCG supported the confidential treatment of company financial documents submitted as the basis for the TUSF assessment.

PrimeCo requested the commission clarify §23.148(g) to specify that telecommunications providers are permitted to label their taxable telecommunications receipts "proprietary" and submit them under seal, and to direct the TUSF administrator to treat such "proprietary information" as confidential unless and until an opinion of the Texas Attorney General orders disclosure.

The commission agrees with TCG that the company financial documents submitted for the TUSF assessment should be treated as confidential information, if the company so requests. The commission assumes that PrimeCo is referring to §23.150(g) regarding assessment for the TUSF. The commission does not revise the subsection in accordance with PrimeCo's comments because §23.150(k) specifies the treatment of information as proprietary. A telecommunications provider may designate taxable telecommunications receipts as proprietary pursuant to §23.150(k). Information so designated will then be treated as proprietary by the TUSF administrator and disclosed only to the telecommunications provider that submitted it, to the commission or its designated representatives, or only upon an opinion of the Attorney General ordering disclosure to a third party.

In its reply comments, CU commented that if implementing §23.133, the THCUSP, resulted in an increase in local service costs through a fee or surcharge, then the commission should not adopt this rule at this time. CU recommended that the commission complete only the portions of this rulemaking regarding small rural high cost companies and the implementation of Lifeline and Link Up. To support its recommendation, CU commented that residential telephone consumers could look forward to new charges of nearly $1 billion and only a promise that reductions in access charges and toll will offset the increase. CU commented that SWBT and GTE are financially healthy companies and questioned why such companies would need a surcharge in order to continue to provide local phone service.

The commission declines to accept CU's recommendation. Adoption of §23.133, which provides a competitively neutral support mechanism for customers residing in high cost rural areas of the large ILECs, will help to encourage competitors to serve those areas because competitive carriers will have access to necessary support for those high cost rural customers. Without such a program, those customers most likely will not see the benefits of competition. As discussed in response to the comments regarding §23.150(g)(5), §23.147 sets forth requirements for an ILEC-ETP to reduce rates as determined appropriate by the commission in exchange for the THCUSP receipts. As a result, the commission finds that while a customer may be assessed a surcharge, the customer may also experience reductions in rates for other services to which that customer subscribes. The commission notes that, depending on the different services to which a customer subscribes, it is possible that individual customers may experience an overall decrease in their bills. However, any increased charges to the general body of customers will be offset by reductions in other charges. Further, low-income customers are protected by the various programs for which they qualify. And, as discussed above, the commission finds that, in order to maintain competitive neutrality under PURA, all services must be assessed the surcharge. The commission also finds that, because PURA requires assessments on BLTS, assessing BLTS does not impair the universal service policies of providing affordable service.

The commission requested that parties comment on the need to repeal P.U.C. Substantive Rules §§23.17 (relating to the Administration of IntraLATA Compensation and Interexchange Carrier Access Charge Revenues), 23.52 (relating to Tel-Assistance and Lifeline Service), and 23.53 (relating to the Universal Service Fund), and on the appropriate timeline for repeal.

AT & T, MCI, GTE, and OPC concurred that the existing rules should be repealed upon the effective date of the proposed rules. GTE indicated that transition should be seamless with monies remaining in any of the current pools or funds transferred to the new fund or distributed in an equitable manner to the participants.

Sprint, SWBT, and TTA asserted that the commission should not yet repeal §23.17. Sprint indicated that until CCN holders in Texas develop a true "IXC-like" toll delivery network the current procedure detailed in §23.17 needs to continue in place. SWBT recommended that the commission consider modifying §23.17 to remove the toll pool reference once intraLATA toll pool compensation has moved to the TUSF and all prior toll pool-related activity has been finalized. TTA opined that it was necessary to retain section §23.17 until the affairs of the intraLATA toll pool are concluded. TTA explained that once the pool is terminated, there remain duties that TECA will have to perform for the final true-up of pool payments and review of final settlement cost studies. TTA recommended that §23.17 remain in place until TECA notifies the commission that these duties have been concluded. TTA expects this conclusion to be 4th quarter 1998.

TTA and Sprint advised repealing §23.52 when funding and tariffs under §23.142 and §23.143 become effective.

Sprint stated that it is not clear from §23.133 that current HCAF support amounts will be transferred to the new TUSF. Sprint indicated that if those amounts are transferred then §23.53 can be deleted as soon as the new TUSF rules are implemented. TTA reiterated its position that the existing HCAF funding should be transferred from §23.53 to proposed §23.136, with funding under new §23.136 effective on the date existing funding terminates. TTA opined that since it appears that actual funding under the new rule will not occur on the effective date of the new rule, it will be necessary to delay repeal of current §23.53 until funding under new §23.136 is actually in place. TTA recommended interim funding under the new TUSF rules be effective July 1, 1998, the date the existing toll pool agreement will expire. If this recommendation is adopted, TTA would recommend a date of June 30, 1998, for repeal of §23.53.

The commission shall retain §23.17 until TECA concludes the final true-up of pool payments and review of final settlement cost studies as suggested by TTA. The commission shall begin the repeal process for §23.52. The commission clarifies that companies wishing to continue receiving the §23.53 support amount must file for that support pursuant to §23.136. The commission shall begin the repeal process for §23.53 within 30 days after support under §23.136 becomes available.

These new sections are adopted under the Public Utility Regulatory Act, Texas Utilities Code Annotated §14.002 and §51.001, Chapters 56, Subchapters B and C (Vernon 1998) (PURA). Section 14.002 provides the commission with the authority to make and enforce rules reasonably required in the exercise of its powers and jurisdiction. Section 51.001 sets forth the state's policy regarding telecommunications. Chapter 56, Subchapter B, sets forth the requirements for the Universal Service Fund. Chapter 56, Subchapter C, sets forth the requirements for the provision of the Tel-Assistance Program.

Cross Index to Statutes: PURA §14.002 and §51.001, and Chapter 56, Subchapters B and C.

§23.131. Texas Universal Service Fund (TUSF).

(a)

Purpose. The purpose of the Texas Universal Service Fund is to implement a competitively neutral mechanism that enables all residents of the state to obtain the basic telecommunications services needed to communicate with other residents, businesses, and governmental entities. Because targeted financial support may be needed in order to provide and price basic telecommunications services in a manner to allow accessibility by consumers, the TUSF will assist local exchange companies (LECs) in providing basic local telecommunications service at reasonable rates in high cost rural areas. In addition, the TUSF will reimburse qualifying entities for revenues lost as a result of providing Lifeline, Link Up and Tel-assistance services to qualifying low-income consumers under the Public Utility Regulatory Act (PURA); reimburse telecommunications carriers providing statewide telecommunications relay access service and qualified vendors providing specialized telecommunications device distribution service for the hearing-impaired and speech- impaired; and reimburse the Texas Department of Human Services, the Texas Department for the Deaf and Hard of Hearing, the TUSF administrator, and the Public Utility Commission for costs incurred in implementing the provisions of PURA Chapter 56 (relating to Telecommunications Assistance and Universal Service Fund).

(b)

Programs included in the TUSF.

(1)

Section 23.133 of this title (relating to the Texas High Cost Universal Service Plan (THCUSP));

(2)

Section 23.134 of this title (relating to the Small and Rural Incumbent Local Exchange Carrier (ILEC) Universal Service Plan);

(3)

Section 23.136 of this title (relating to the Implementation of the Public Utility Regulatory Act §56.025);

(4)

Section 23.138 of this title (relating to Additional Financial Assistance (AFA));

(5)

Section 23.142 of this title (relating to Lifeline and Link Up Service);

(6)

Section 23.143 of this title (relating to Tel-Assistance Service);

(7)

Section 23.144 of this title (relating to Telecommunications Relay Service);

(8)

Section 23.145 of this title (relating to Specialized Equipment Distribution);

(9)

Section 23.147 of this title (relating to Designation of Local Exchange Carriers as Eligible Telecommunications Providers to Receive Texas Universal Service Funds (TUSF));

(10)

Section 23.148 of this title (relating to Designation of Common Carriers as Eligible Telecommunications Carriers to Receive Federal Universal Service Funds (FUSF)); and

(11)

Section 23.150 of this title (relating to Administration of the Texas Universal Service Fund (TUSF)).

§23.133. Texas High Cost Universal Service Plan (THCUSP).

(a)

Purpose. This section establishes guidelines for financial assistance to eligible telecommunications providers (ETPs) that serve the high cost rural areas of the state, other than study areas of small and rural incumbent local exchange carriers (ILECs), so that basic local telecommunications service may be provided at reasonable rates in a competitively neutral manner.

(b)

Definitions. The following words and terms when used in this section shall have the following meaning unless the context clearly indicates otherwise:

(1)

Benchmark - The per-line amount above which THCUSP support will be provided.

(2)

Business line - The telecommunications facilities providing the communications channel that serves a single-line business customer's service address. For the purpose of this definition, a single-line business line is one to which multi-line hunting, trunking, or other special capabilities do not apply.

(3)

Census block group (CBG) - A United States Census Bureau geographic designation that generally contains between 250 and 550 housing units.

(4)

Discretionary services - Services that may be added, at the user's option, to basic local telecommunications service, such as call waiting, call forwarding, and caller ID.

(5)

Eligible line - A residential line and a single-line business line over which an ETP provides the service supported by the THCUSP through its own facilities, purchase of unbundled network elements (UNEs), or a combination of its own facilities and purchase of UNEs.

(6)

Eligible telecommunications provider (ETP) - A local exchange company (LEC) designated by the commission pursuant to §23.147 of this title (relating to Designation of Local Exchange Carriers as Eligible Telecommunications Providers to Receive Texas Universal Service Funds (TUSF)).

(7)

High cost area - A geographic area for which the costs established using a forward- looking economic cost methodology exceed the benchmark levels established by the commission.

(8)

Incumbent local exchange carrier (ILEC) - That definition given in §23.3 of this title (relating to Definitions).

(9)

Local exchange carrier (LEC) - That definition given in §23.3 of this title.

(10)

Residential line - The telecommunications facilities providing the communications channel that serves a residential customer's service address. For the purpose of this definition, a residential line is one to which multi-line hunting, trunking, or other special capabilities do not apply.

(c)

Application. This section applies to LECs that have been designated ETPs by the commission pursuant to §23.147 of this title.

(d)

Service to be supported by the THCUSP. The THCUSP shall support basic local telecommunications services provided by an ETP in high cost rural areas of the state and is limited to those services carried on all flat rate residential lines and the first five flat rate single-line business lines at a business customer's location. Local measured residential service, if chosen by the customer and offered by the ETP, shall also be supported.

(1)

Initial determination of the definition of basic local telecommunications service. As of the effective date of this section, basic local telecommunications service shall consist of the following:

(A)

flat rate, single party residential and business local exchange telephone service, including primary directory listings;

(B)

tone dialing service;

(C)

access to operator services;

(D)

access to directory assistance services;

(E)

access to 911 service where provided by a local authority;

(F)

dual party relay service;

(G)

the ability to report service problems seven days a week;

(H)

availability of an annual local directory;

(I)

access to toll services; and

(J)

lifeline and tel-assistance services.

(2)

Subsequent determinations.

(A)

Timing of subsequent determinations.

(i)

The definition of the services to be supported by the THCUSP shall be reviewed by the commission every three years from the effective date of this section.

(ii)

The commission may initiate a review of the definition of the services to be supported on its own motion at any time.

(B)

Criteria to be considered in subsequent determinations. In evaluating whether services should be added to or deleted from the list of supported services, the commission may consider the following criteria:

(i)

the service is essential for participation in society;

(ii)

a substantial majority, 75% of residential customers, subscribe to the service;

(iii)

the benefits of adding the service outweigh the costs; and

(iv)

the availability of the service, or subscription levels, would not increase without universal service support.

(e)

Criteria for determining amount of support under THCUSP. The TUSF administrator shall disburse monthly support payments to ETPs qualified to receive support pursuant to this section. The amount of support available to each ETP shall be calculated using the base support amount available as provided under paragraph (1) of this subsection as adjusted by the requirements of paragraph (4) of this subsection.

(1)

Determining base support amount available to ETPs. The monthly per-line support amount available to each ETP shall be determined by comparing the forward-looking economic cost, computed pursuant to subparagraph (A) of this paragraph, to the applicable benchmark as determined pursuant to subparagraph (B) of this paragraph. The monthly base support amount is the sum of the monthly per- line support amounts for each eligible line served by the ETP, as required by subparagraph (C) of this paragraph.

(A)

Calculating the forward-looking economic cost of service. The monthly cost per-line of providing the basic local telecommunications services and other services included in the benchmark shall be calculated using a forward- looking economic cost methodology.

(B)

Determination of the benchmark. The commission shall establish two benchmarks for the state, one for residential service and one for single-line business service. As of the effective date of this section, the benchmarks for both residential and single-line businesses will be calculated using the statewide average revenue per line as described in clause (i) and (ii) of this subparagraph for all ETPs participating in the THCUSP.

(i)

Residential revenues per line are the sum of the residential revenues generated by basic and discretionary local services, as well as a reasonable portion of toll and access services, for the year ending December 31, 1997, divided by the average number of residential lines served for the same period, divided by 12.

(ii)

Business revenues per line are the sum of the business revenues generated by basic and discretionary local services for single-line business lines, as well as a reasonable portion of toll and access services for the year ending December 31, 1997, divided by the average number of single-line business lines served for the same period, divided by 12.

(C)

Support under the THCUSP is portable with the consumer. An ETP shall receive support for residential and the first five single-line business lines at the business customer's location that it is serving over eligible lines in such ETP's THCUSP service area.

(2)

Initial proceeding to determine base support amount. Within 30 days of the effective date of this section, the commission shall initiate a proceeding to determine:

(A)

the per-line cost of providing the services, using a forward-looking economic cost methodology on no greater than a CBG basis, or any other geographic area deemed appropriate by the commission, as required by paragraph (1) of this subsection; and

(B)

the benchmark as required by paragraph (1) of this subsection.

(3)

Subsequent proceedings to determine THCUSP base support.

(A)

Timing of subsequent determinations.

(i)

The commission shall review the forward-looking cost methodology, the benchmark levels, and/or the base support amounts every three years from the effective date of this section.

(ii)

The commission may initiate a review of the forward-looking cost methodology, the benchmark levels, and/or the base support amounts on its own motion at any time.

(B)

Criteria to be considered in subsequent determinations. In considering the need to make appropriate adjustments to the forward-looking cost methodology, the benchmark levels, and/or the base support amount, the commission may consider current retail rates and revenues for basic local service, growth patterns, and income levels in low-density areas.

(4)

Calculating amount of THCUSP support payments to individual ETPs. After the monthly base support amount is determined, the TUSF administrator shall make the following adjustments each month in order to determine the actual support payment that each ETP may receive each month.

(A)

Access revenues adjustment. If an ETP is an ILEC that has not reduced its rates pursuant to §23.147 of this title, the base support amount that such ETP is eligible to receive shall be decreased by such ETP's carrier common line (CCL), residual interconnection charge (RIC), and toll revenues for the month.

(B)

Adjustment for federal USF support. The base support amount an ETP is eligible to receive shall be decreased by the amount of federal universal service high cost support received by the ETP.

(C)

Adjustment for service provided solely through the purchase of unbundled network elements (UNEs). If an ETP provides supported services over an eligible line solely through the purchase of UNEs, the commission shall determine the manner in which any THCUSP support for such eligible line may be allocated between the ETP providing service to the end user and the ETP providing the UNEs.

(f)

Reporting requirements. An ETP eligible to receive support pursuant to this section shall report the following information to the commission or the TUSF administrator.

(1)

Initial reporting requirements. An ETP shall provide the commission with information deemed necessary by the presiding officer in the proceeding conducted pursuant to §23.150(f)(2)(A) of this title (relating to Administration of Texas Universal Service Fund (TUSF)).

(2)

Monthly reporting requirements. An ETP shall report the following to the TUSF administrator on a monthly basis:

(A)

information regarding the access lines on the ETP's network including:

(i)

the total number of access lines on the ETP's network,

(ii)

the total number of access lines sold as UNEs,

(iii)

the total number of access lines sold for total service resale,

(iv)

the total number of access lines serving end use customers, and

(v)

the total number of eligible lines for which the ETP seeks TUSF support;

(B)

the rate that the ETP is charging for residential and single-line business customers for the services described in subsection (d) of this section; and

(C)

a calculation of the base support computed in accordance with the requirements of subsection (e)(1) of this section showing the effects of the adjustments required by subsection (e)(4) of this section.

(3)

Annual reporting requirements. An ETP shall report annually to the TUSF administrator that it is qualified to participate in the THCUSP.

(4)

Other reporting requirements. An ETP shall report any other information that is required by the commission or the TUSF administrator.

(g)

Review of THCUSP after implementation of federal universal service support. The commission shall initiate a project to review the THCUSP within 90 days of the Federal Communications Commission's adoption of an order implementing new or amended federal universal service support rules for rural, insular, and high cost areas.

§23.134. Small and Rural Incumbent Local Exchange Carrier (ILEC) Universal Service Plan.

(a)

Purpose. This section establishes guidelines for financial assistance to eligible telecommunications providers (ETPs) that provide service in the study areas of rural ILECs areas and small ILECs' areas in the state so that basic local telecommunications service may be provided at reasonable rates in a competitively neutral manner.

(b)

Definitions. The following words and terms when used in this section shall have the following meaning unless the context clearly indicates otherwise:

(1)

Eligible line - A residential line and a single-line business line over which an ETP provides the service supported by the Small and Rural ILEC Universal Service Plan through its own facilities, purchase of unbundled network elements (UNEs), or a combination of its own facilities and purchase of UNEs.

(2)

Eligible telecommunications provider (ETP) - A telecommunications provider designated by the commission pursuant to §23.147 of this title (relating to the Designation of Local Exchange Carriers as Eligible Telecommunications Providers to Receive Texas Universal Service Funds (TUSF)).

(3)

Rural incumbent local exchange carrier (ILEC) - An ILEC that qualifies as a "rural telephone company" as defined in 47 United States Code §3(37) and/or 47 United States Code §251(f)(2).

(4)

Small incumbent local exchange carrier (ILEC) - An ILEC that qualifies as a "small local exchange company" as defined in the Public Utility Regulatory Act, §53.304(a)(1).

(5)

Study area - An ILEC's existing service area in a given state.

(6)

Test year - The fiscal year ending in 1997.

(c)

Application.

(1)

Small or rural ILECs. This section applies to small ILECs and rural ILECs, as defined in subsection (b) of this section, that have been designated ETPs by the commission pursuant to §23.147 of this title.

(2)

Other ETPs providing service in small or rural ILEC study areas. This section applies to LECs other than small or rural ILECs that provide service in small or rural ILEC study areas that have been designated ETPs by the commission pursuant to §23.147 of this title.

(d)

Service to be supported by the Small and Rural ILEC Universal Service Plan. The Small and Rural ILEC Universal Service Plan shall support the provision by ETPs of basic local telecommunications service as defined in §23.133(d) of this title (relating to the Texas High Cost Universal Service Plan (THCUSP)).

(e)

Small and Rural ILEC Universal Service Plan monthly per-line support. A monthly per-line amount of support for each small or rural ILEC study area shall be determined in a one-time calculation using data from such small or rural ILEC's test year that has been audited by an independent auditor in conformance with generally accepted accounting principles (GAAP).

(1)

Calculation of the monthly per-line amount of support for each small or rural ILEC. The toll pool amounts and access/toll revenue reductions determined in accordance with subparagraphs (A) and (B) of this paragraph shall be added together. To calculate the per-line amount of support, the resulting sum will then be divided by the average number of eligible lines served by such small or rural ILEC during the test year. To calculate the monthly per-line amount of support, the result shall be divided by 12.

(A)

Toll pool amounts. The toll pool amount for a small or rural ILEC shall be determined by subtracting the actual toll billed by the small or rural ILEC during the test year from its toll pool revenue requirement for the test year, as certified by the Texas Exchange Carrier Association (TECA).

(B)

Access/toll revenue reduction. If at the time this section is implemented:

(i)

a small or rural ILEC reduces its common carrier line (CCL) charge, residual interconnection charge (RIC) and/or intraLATA toll rates to match the reduction in CCL, RIC and/or intraLATA toll rates of one of the ILECs receiving support under §23.133 of this title, such small or rural ILEC may recover the difference between the previous rates and the new rates, computed on the basis of minutes of use in the test year. This amount is calculated by multiplying the difference between the previous and the new rates by the test year minutes of use; or

(ii)

a small or rural ILEC reduces its CCL, RIC, and/or intraLATA toll rates to the revised rate level of one of the ILECs receiving support under §23.133 of this title, such small or rural ILEC may, upon commission approval, recover the difference between the previous rates and the revised rates, computed on the basis of minutes of use in a test year. This amount is calculated by multiplying the difference between the previous and the revised rates by the test year minutes of use.

(2)

Freeze on support levels. The per-line amount of support calculated in paragraph (1) of this subsection shall remain constant as long as the small or rural ILEC is eligible to receive funds pursuant to this section.

(3)

Proceeding to determine support amount. Within 30 days of the effective date of this section, the commission shall initiate a proceeding to determine the monthly per- line amount of support as required by paragraph (1) of this subsection.

(f)

Small and Rural ILEC Universal Service Plan support payments to ETPs. The TUSF administrator shall disburse monthly support payments to ETPs qualified to receive support pursuant to this section.

(1)

Payments to small or rural ILEC ETPs. The payment to each small or rural ILEC ETP shall be computed by multiplying the per-line amount established in subsection (e) of this section by the number of eligible lines served by the small or rural ILEC ETP for the month.

(2)

Payments to ETPs other than small or rural ILECs. The payment to each ETP other than a small or rural ILEC shall be computed by multiplying the per-line amount established in subsection (e) of this section for a given small or rural ILEC study area by the number of eligible lines served by the ETP in such study area for the month.

(g)

Reporting requirements. An ETP eligible to receive support under this section shall report information as required by the commission and the TUSF administrator.

(1)

Initial reporting requirements. ETPs shall provide the commission with information deemed necessary by the presiding officer in the proceeding conducted pursuant to §23.150(f)(2)(A) of this title (relating to the Administration of the Texas Universal Service Fund (TUSF)).

(2)

Monthly reporting requirements. An ETP shall report the total number of eligible lines served by the ETP in its study area to the TUSF administrator on a monthly basis.

(3)

Annual reporting requirements. An ETP shall report annually to the TUSF administrator that it is qualified to participate in the Small and Rural ILEC Universal Service Plan.

(4)

Other reporting requirements. An ETP shall report any other information required by the commission or the TUSF administrator.

(h)

Review of Small and Rural ILEC Universal Service Plan after implementation of federal universal service support. Within 90 days of the Federal Communications Commission's adoption of an order implementing new or amended federal universal service support rules for rural, insular, and high cost areas, the commission shall initiate a project to investigate a mechanism by which ETPs receiving support pursuant to this section would transition to receiving support pursuant to §23.133 of this title.

§23.136. Implementation of the Public Utility Regulatory Act §56.025.

(a)

Purpose. The purpose of this section is to implement the provisions of the Public Utility Regulatory Act (PURA) §56.025.

(b)

Applicability. An incumbent local exchange company (ILEC) serving fewer than five million access lines may seek to recover funds from the Texas Universal Service Fund (TUSF) under this section in the following circumstances:

(1)

Commission reduction in the amount of high cost assistance fund. In the event of a commission order, rule, or policy, the effect of which is to reduce the amount of the high cost assistance fund support received by the ILEC as of the effective date of this section, except an order entered in an individual company revenue requirement proceeding, the commission shall allow, through the universal service fund, an ILEC to replace the reasonably projected reduction in revenues caused by that regulatory action.

(2)

Change in federal universal service fund revenues. In the event of a Federal Communications Commission order, rule, or policy, the effect of which is to change the federal universal service fund revenues of an ILEC or change costs or revenues assigned to the intrastate jurisdiction, the commission shall, through either the universal service fund or an increase to rates if that increase would not adversely impact universal service, replace the reasonably projected change in revenues caused by the regulatory action.

(3)

Commission change in intraLATA dialing access policy. In the event of a commission change in its policy with respect to intraLATA "1+" dialing access, the commission shall, through either the universal service fund or an increase to rates if that increase would not adversely impact universal service, replace the reasonably projected reduction in contribution caused by the action. Contribution for purposes of this paragraph equals average intraLATA long distance message telecommunications service (MTS) revenue, including intraLATA toll pooling and associated impacts, per minute less average MTS cost per minute less the average contribution from switched access times the projected change in intraLATA "1+" minutes of use.

(4)

Other governmental agency action. In the event of any other governmental agency issuing an order, rule, or policy, the effect of which is to increase costs or decrease revenues of the intrastate jurisdiction, the commission shall, through either the universal service fund or an increase to rates, if that increase would not adversely impact universal service, replace the reasonably projected increase in costs or decrease in revenues caused by that regulatory action.

(c)

Requirements of the ILEC.

(1)

Burden of proof. The ILEC seeking to recover funds from the TUSF under this section has the burden of proof. A revenue requirement showing is not required with respect to disbursements from the TUSF under this section.

(2)

Contents of application. The ILEC seeking to recover funds from the TUSF under this section shall file an application:

(A)

complying with the commission's Procedural Rules §22.73 of this title (relating to General Requirements for Applications); and

(B)

providing the amount requested from the TUSF under this section, the calculation of the amount requested, and detailed documentation and workpapers supporting the calculations.

(3)

Notice. The ILEC seeking to recover funds from the TUSF under this section shall provide notice as required by the presiding officer pursuant to the commission's Procedural Rules §22.55 of this title (relating to Notice in Other Proceedings). At a minimum, the notice shall state that the ILEC is requesting to recover funds from the TUSF under this section and the Public Utility Regulatory Act §56.025 and state the amount the ILEC is requesting to recover. At a minimum, the notice shall be published in the Texas Register.

(d)

Commission processing of the application.

(1)

The application shall be processed under the commission's Procedural Rules.

(2)

The commission shall process applications under this section promptly and efficiently.

(e)

Reporting requirements. An ILEC awarded support under this section shall provide the TUSF administrator a copy of the commission's final order indicating the amount of support it is to receive under this section.

§23.138. Additional Financial Assistance (AFA).

(a)

Purpose. Incumbent local exchange carriers (ILECs) serving high cost and rural areas of the state may require financial assistance, in addition to the funds provided by §23.133 of this title (relating to Texas High Cost Universal Service Plan (THCUSP)), by §23.134 of this title (relating to Small and Rural Incumbent Local Exchange Carrier (ILEC) Universal Service Plan), or by §23.136 of this title (relating to the Implementation of the Public Utility Regulatory Act §56.025), so that these carriers may provide basic local exchange service at reasonable rates. This section establishes guidelines for requesting Additional Financial Assistance (AFA) from the Texas Universal Service Fund (TUSF).

(b)

Application. Any ILEC that has been designated by the commission as an eligible telecommunications provider (ETP) and is not an electing company under the Public Utility Regulatory Act (PURA) Chapter 58 or 59, may request AFA in a PURA §§53.105, 53.151, or 53.306 proceeding completed after the effective date of this section.

(c)

Establishment of AFA need. The commission may approve an ILEC's AFA request if the commission finds:

(1)

that the ILEC has fulfilled the appropriate requirements under PURA §§53.105, 53.151, or 53.306; and

(2)

that raising the ILEC's rates for basic local telecommunications service, as defined in §23.133 of this title, would adversely affect universal service in such ILEC's certificated service area.

(d)

Reporting requirements. Any ILEC awarded AFA support pursuant to this section through a commission proceeding shall provide the TUSF administrator with a copy of the final order indicating the amount of support.

§23.142. Lifeline Service and Link Up Service Programs.

(a)

Application. This section applies to eligible telecommunications carriers as defined by §23.148 of this title (relating to Designation of Common Carriers as Eligible Telecommunications Carriers to Receive Federal Universal Service Funds (FUSF)).

(b)

Definitions. The following words and terms, when used in this section, shall have the following meanings unless the context clearly indicates otherwise.

(1)

Qualifying low-income consumer - A consumer who participates in one of the following programs: Medicaid, food stamps, Supplemental Security Income, federal public housing assistance, or Low-Income Home Energy Assistance Program.

(2)

TDHS - Texas Department of Human Services.

(3)

Toll blocking - A service provided by telecommunications carriers that lets consumers elect not to allow the completion of outgoing toll calls from their telecommunications channel.

(4)

Toll control - A service provided by telecommunications carriers that allows consumers to specify a certain amount of toll usage that may be incurred on their telecommunications channel per month or per billing cycle.

(5)

Toll limitation - Denotes both toll blocking and toll control.

(c)

Lifeline Service and Link Up Service. Each eligible telecommunications carrier shall provide Lifeline Service and Link Up Service as provided by this section. A consumer eligible for Lifeline Service is automatically eligible for Link Up Service. However, a consumer may qualify for and receive Link Up Service independently of Lifeline Service. Nothing in this section shall prohibit a consumer otherwise eligible to receive Lifeline Service and/or Link Up Service from obtaining and using telecommunications equipment or services designed to aid such consumer in utilizing qualifying telecommunications services.

(d)

Lifeline Service Program. Lifeline Service is a retail local service offering available to qualifying low-income consumers.

(1)

Provision of Lifeline Service. Lifeline Service shall be provided according to the following requirements.

(A)

Designated Lifeline services. The eligible telecommunications carrier shall offer the services or functionalities enumerated in 47 Code of Federal Regulations §54.101(a)(1)-(9) (relating to Supported Services for Rural, Insular and High Cost Areas).

(B)

Toll limitation.

(i)

Toll limitation requirements. The eligible telecommunications carrier shall offer toll limitation to all qualifying low-income consumers at the time such consumers subscribe to Lifeline Service. If the consumer elects to receive toll limitation, that service shall become part of the consumer's Lifeline Service.

(ii)

Waiver. The commission may grant a waiver of the requirement of clause (i) of this subparagraph upon a finding that exceptional circumstances prevent an eligible telecommunications carrier from providing toll limitation. The period for the waiver shall not extend beyond the time that the commission deems necessary for that eligible telecommunications carrier to complete network upgrades to provide toll limitation services.

(C)

Disconnection of service.

(i)

Disconnection prohibition. An eligible telecommunications carrier may not disconnect Lifeline Service for non-payment of toll charges.

(ii)

Waiver. The commission may grant a waiver of clause (i) of this subparagraph if the eligible telecommunications carrier can demonstrate that:

(I)

it would incur substantial costs in complying with this requirement;

(II)

it offers toll limitation to its qualifying low-income consumers without charge; and

(III)

telephone subscribership among low-income consumers in the eligible telecommunications carrier's service area is greater than or equal to the national subscribership rate for low- income consumers with an income below the poverty level for a family of four residing in the state.

(iii)

Review by FCC.

(I)

An eligible telecommunications carrier may file a petition for review of the commission decision pursuant to clause (ii) of this subparagraph with the Federal Communications Commission (FCC) within 30 days of that decision.

(II)

If the commission has not acted on a petition to waive the requirement of clause (i) of this subparagraph within 30 days of the date of the filing of the waiver petition, the eligible telecommunications carrier may file the petition with the FCC on the 31st day after the initial filing date.

(iv)

Subsequent waiver requests. An eligible telecommunications carrier may reapply for the waiver set forth in clause (ii) of this subparagraph.

(D)

Service deposit prohibition.

(i)

Service deposit requirements. An eligible telecommunications carrier may not collect a service deposit in order to initiate Lifeline Service, if the qualifying low-income consumer voluntarily elects toll blocking from the eligible telecommunications carrier.

(ii)

Waiver. If a waiver for providing toll blocking has been granted pursuant to subparagraph (B)(ii) of this paragraph, an eligible telecommunications carrier may charge a service deposit.

(2)

Lifeline support.

(A)

Lifeline support amounts. Lifeline support amounts per qualifying low- income consumer shall be provided according to the provisions of this paragraph.

(i)

Federal baseline Lifeline support amount. An eligible telecommunications carrier shall grant a waiver of the $3.50 monthly federal subscriber line charge (SLC) to qualifying low-income consumers. If the eligible telecommunications carrier does not charge the federal SLC, it shall apply the $3.50 federal baseline support amount to reduce its lowest tariffed residential rate for supported services.

(ii)

State-approved $1.75 reduction. Pursuant to 47 Code of Federal Regulations §54.403 (relating to Lifeline Support Amount), an eligible telecommunications carrier shall give a qualifying low- income consumer a state-approved reduction of $1.75 in the monthly amount of intrastate charges paid.

(iii)

Additional state reduction with federal matching. Pursuant to 47 Code of Federal Regulations §54.403, an eligible telecommunications carrier shall give a qualifying low-income consumer the following:

(I)

an additional state-approved reduction of $3.50 in the monthly amount of intrastate charges; and

(II)

a further federally approved reduction of $1.75.

(B)

Recovery of support amounts.

(i)

Federal baseline Lifeline support. An eligible telecommunications carrier shall be entitled to recover the support amount required by subparagraph (A)(i) of this paragraph pursuant to 47 Code of Federal Regulations §54.407 (relating to Reimbursement for offering Lifeline), through the federal USF.

(ii)

State-approved $1.75 reduction. An eligible telecommunications carrier shall be entitled to recover federal Lifeline support pursuant to 47 Code of Federal Regulations §54.407 to recover the reduction amount required by subparagraph (A)(ii) of this paragraph.

(iii)

Additional state reduction with federal matching.

(I)

An eligible telecommunications carrier shall be entitled to recover support from the Texas Universal Service Fund to recover the reduction amount required by subparagraph (A)(iii)(I) of this paragraph. An eligible telecommunications carrier that is also an incumbent local exchange company (ILEC) as defined by §23.3 of this title (relating to Definitions) that offered, as of June 1, 1997, a tariffed $3.50 Lifeline Service rate discount in addition to the $3.50 waiver of the federal SLC, must reduce rates for services determined appropriate by the commission by an amount equivalent to the amount of support it is eligible to receive under this subclause. If such ILEC does not reduce its toll and access rates pursuant to this subclause, it shall not be eligible to receive support under this subclause.

(II)

An eligible telecommunications carrier shall be entitled to recover federal Lifeline support pursuant to 47 Code of Federal Regulations §54.407 to recover the reduction amount required by subparagraph (A)(iii)(II) of this paragraph.

(C)

Application of support amounts.

(i)

Eligible telecommunications carriers that charge the federal SLC or equivalent federal charges shall apply the $3.50 federal baseline Lifeline support to waive a qualified low-income consumer's federal SLC. The state-approved reductions of $1.75 and $3.50 and the additional federally approved reduction of $1.75 shall be applied to reduce the monthly intrastate end user charges paid by the qualifying low-income consumers.

(ii)

Eligible telecommunications carriers that do not charge the federal SLC or equivalent federal charges shall apply the $3.50 federal baseline Lifeline support amount, plus the state-approved reductions of $1.75 and $3.50 and the additional federally approved reduction of $1.75 to reduce their lowest tariffed residential rate for the supported services and charge qualified low-income consumers the resulting amount.

(iii)

The monthly discounted residential rate for qualified low-income consumers may not be reduced below $2.50.

(e)

Link Up Service Program. This is a program certified by the FCC that provides qualifying low-income consumer with the following assistance:

(1)

Services.

(A)

A qualifying low-income consumer may receive a reduction in the eligible telecommunications carrier's customary charge for commencing telecommunications service for a primary single line connection at the consumer's principal place of residence. The reduction shall be half of the customary charge or $30, whichever is less.

(B)

A qualifying low-income consumer may receive a deferred schedule for payment of the charges assessed for commencing service, for which the consumer does not pay interest. The interest charges not assessed the consumer shall be for connection charges of up to $200 that are deferred for a period not to exceed one year. Charges assessed for commencing service include any charges that the carrier customarily assesses to connect subscribers to the network. These charges do not include any permissible security deposit requirements.

(2)

Qualifying low-income consumer choice. A qualifying low-income consumer may choose one or both of the programs set forth in paragraphs (1)(A) and (B) of this subsection.

(3)

Limitation on receipt. An eligible telecommunications carrier's Link Up program shall allow a qualifying low-income consumer to receive the benefit of the Link Up program for a second or subsequent time only for a principal place of residence with an address different from the residence address at which the Link Up assistance was provided previously.

(f)

Obligations of the consumer, TDHS, and the eligible telecommunications carrier.

(1)

Obligations of the consumer. Consumers may apply for Lifeline Service and Link Up Service by completing and filing an application with TDHS. Consumers who are eligible for Lifeline Service and Link Up Service and who do not have telephone service must additionally initiate a request for service from their serving eligible telecommunications carrier.

(2)

Obligations of TDHS. TDHS shall review the consumer's application form and shall determine if the consumer meets the eligibility criteria. TDHS shall provide each eligible telecommunications carrier with an initial list of consumers eligible for Lifeline Service and Link Up Service and shall provide an updated list to each eligible telecommunications carrier on a semi-annual basis.

(3)

Obligations of eligible telecommunications carriers.

(A)

Lifeline Service.

(i)

The eligible telecommunications carrier shall provide Lifeline Service to all eligible consumers identified by TDHS within its service area if the existing service of those consumers meets the qualifications set forth in subsection (d)(1) of this section. The eligible telecommunications carrier shall identify those consumers on the TDHS list to whom it is providing telephone service and shall determine if the existing telephone service qualifies. Within 60 days after receipt of the list, the eligible telecommunications carrier shall begin reduced billing for those qualifying low-income consumers subscribing to qualifying services.

(ii)

If the existing telephone service does not qualify, the eligible telecommunications carrier shall advise the eligible consumer by direct mail of changes necessary to satisfy Lifeline criteria. The eligible telecommunications carrier shall advise the eligible consumer by direct mail that persons choosing not to make necessary changes to their telephone service arrangements will not receive Lifeline Service and that the eligible consumer shall not be charged for changes in telephone service arrangements that are made in order to qualify for Lifeline Service, or for service order charges associated with transferring the account into Lifeline Service. If the eligible consumer changes the telephone service to qualifying services or initiates new qualifying service, the eligible telecommunications carrier shall begin reduced billing at the time the change of service becomes effective or at the time new service is established.

(iii)

The eligible telecommunications carrier shall notify TDHS on a semi- annual basis of changes in the status of its Lifeline Service consumers.

(B)

Link Up Service. The eligible telecommunications carrier shall provide Link Up Service to all qualifying low-income consumers identified by TDHS within its service area, who have initiated a request for service pursuant to subsection (f)(1) of this section.

(C)

Qualifying low-income consumer certification. An eligible telecommunications carrier shall obtain from the qualifying low-income consumer that consumer's signature on a document certifying under penalty of perjury that the consumer receives benefits from one of the programs identified in subsection (b)(1) of this section, and shall identify the program(s) from which that consumer receives benefits. On the same document, a qualifying low-income consumer must also agree to notify the eligible telecommunications carrier if that consumer ceases to participate in the program(s) identified in subsection (b)(1) of this section.

(g)

Tariff requirement. Each carrier seeking designation as an eligible telecommunications carrier shall file a tariff to implement Lifeline Service and Link Up Service, or revise its existing tariff for compliance with this section and with applicable law, prior to filing its application for designation as an eligible telecommunications carrier. No other revision, addition, or deletion unrelated to Lifeline Service and Link Up Service shall be contained in the tariff application.

(h)

Reporting requirements.

(1)

TUSF. An eligible telecommunications carrier providing Lifeline Service pursuant to this section shall report information as required by the commission or the TUSF administrator, including but not limited to the following information.

(A)

Initial reporting requirements. An eligible telecommunications carrier shall provide the commission and the TUSF administrator with information demonstrating that its Lifeline plan meets the requirements of this section.

(B)

Monthly reporting requirements. An eligible telecommunications carrier shall report monthly to the TUSF administrator the total number of qualified low-income consumers to whom Lifeline Service was provided for the month by the eligible telecommunications carrier.

(C)

Other reporting requirements. An eligible telecommunications carrier shall report any other information required by the commission or the TUSF administrator.

(2)

Federal Lifeline Service Program. An eligible telecommunications carrier shall file the following information with the administrator of the Federal Lifeline Program:

(A)

information demonstrating that the eligible telecommunications carrier's Lifeline plan meets the criteria set forth in 47 Code of Federal Regulations Subpart E (relating to Universal Service Support for Low-Income Consumers);

(B)

the number of qualifying low-income consumers served by the eligible telecommunications carrier;

(C)

the amount of state assistance; and

(D)

other information required by the administrator of the Federal Lifeline Program.

§23.143. Tel-Assistance Service.

(a)

Application. This section applies to local exchange carriers (LECs) as defined by §23.3 of this title (relating to Definitions).

(b)

Definitions. The following words and terms, when used in this section, shall have the following meanings unless the context clearly indicates otherwise:

(1)

Eligible consumer - In order to be eligible for Tel-Assistance Service, the consumer must:

(A)

be a head of household and disabled, as determined by the Texas Department of Human Services (TDHS); and

(B)

have a household income at or below the poverty level, as reported annually by the United States Office of Management and Budget in the Federal Register.

(2)

Qualifying services -

(A)

residential flat rate basic local exchange service;

(B)

residential local exchange access service; and

(C)

residential local area calling usage.

(3)

Tel-Assistance Service - A program providing eligible consumers with a 65% reduction in the applicable tariff rate for qualifying services.

(4)

TDHS - Texas Department of Human Services.

(c)

Provision of Tel-Assistance Service. Each LEC shall provide Tel-Assistance Service as provided in this section. A consumer eligible for Tel-Assistance Service also qualifies for Lifeline Service and Link Up Service as provided in §23.142 of this title (relating to Lifeline Service and Link Up Service). Nothing in this section shall prohibit a person otherwise eligible to receive Tel-Assistance Service from obtaining and using telecommunications equipment or services designed to aid such person in utilizing qualifying telecommunications services.

(1)

Rate reductions under Tel-Assistance Service.

(A)

Each LEC shall provide Tel-Assistance Service to all eligible consumers within its certificated area in the form of a 65% reduction in the applicable tariff rate for the qualifying services provided.

(B)

The reduction for local area calling usage shall be limited to an amount such that, together with the reduction for local exchange access service, the overall rate reduction does not exceed the comparable reduction applicable to flat rate service.

(2)

Texas Universal Service Fund (TUSF) reimbursement. LECs providing Tel- Assistance Service to eligible consumers under this section are eligible for reimbursement from the TUSF of the lost revenue associated with the application of a 65% reduction in the applicable tariff rate for those accounts.

(d)

Obligations of the consumer, TDHS, and the LEC.

(1)

Consumer. Consumers may apply for Tel-Assistance Service by obtaining an application form from TDHS. Persons who are eligible for Tel-Assistance Service, but do not have telephone service at the time TDHS provides its eligibility list to LECs, are responsible for initiating a request for qualifying services from their serving LEC.

(2)

TDHS. TDHS shall review the consumer's application form and shall determine if the consumer meets the eligibility criteria. TDHS shall provide each LEC with an initial list of persons eligible for Tel-Assistance Service and shall provide an updated list to each LEC on a semi-annual basis.

(3)

LEC.

(A)

The LEC shall provide Tel-Assistance Service to all eligible consumers identified by TDHS within its certificated area if the existing service of those consumers meets the qualifications set forth in subsection (b)(2) of this section. The LEC shall identify those consumers on the TDHS list to whom it is providing telephone service and shall determine if the existing telephone service qualifies. Within 60 days after receipt of the list, the LEC shall begin reduced billing for those eligible consumers subscribing to qualifying services.

(B)

If the existing telephone service does not qualify, the LEC shall advise the eligible consumer by direct mail of changes necessary to satisfy Tel- Assistance Service criteria. The LEC shall advise the eligible consumer by direct mail that persons choosing not to make necessary changes to their telephone service arrangements will not receive Tel-Assistance Service and that the eligible consumer shall not be charged for changes in telephone service arrangements that are made in order to qualify for Tel-Assistance Service, or for service order charges associated with transferring the account into Tel-Assistance Service. If the eligible consumer changes the existing telephone service to qualifying services or initiates new qualifying service, the LEC shall begin reduced billing at the time the change of service becomes effective or at the time new service is established.

(C)

The LEC shall notify TDHS on a semi-annual basis of changes in the status of its Tel-Assistance Service consumers.

(e)

Specific service exceptions for Tel-Assistance Service. No other local voice service may be provided to the dwelling place of a Tel-Assistance Service consumer, nor may single or party line optional extended area service, optional extended area calling service, foreign zone service or foreign exchange service be provided to a Tel-Assistance Service consumer.

(f)

Retroactive prohibition for Tel-Assistance Service. Tel-Assistance Service shall not be available on a retroactive basis except for such instances in which the LEC failed to initiate reduced billing within the time frame established in subsection (d)(3)(A) of this section.

(g)

Termination of Tel-Assistance Service. Consumer certification is provided by TDHS subject to annual renewal. Reduced billing will continue until such time as either the TDHS notifies the LEC that the consumer is no longer eligible or the consumer establishes telephone service arrangements that do not satisfy the qualifications for Tel-Assistance Service. After Tel-Assistance Service is established, if the recipient requests a change in telephone service arrangements such that the new arrangements do not meet the qualifications, before making such changes, the LEC shall advise the consumer by direct mail that the requested changes will result in removal of the Tel-Assistance Service discount. If the consumer then chooses to have such changes made, the LEC shall terminate the discount at the time the change of service becomes effective.

(h)

Reporting requirements for the provision of Tel-Assistance Service. LECs shall file monthly reports with the TUSF administrator detailing the lost revenues associated with the 65% discount applied to Tel-Assistance Service accounts. The LECs shall also file activity reports showing the total number of accounts transferred into and out of Tel-Assistance Service in the previous month and the total number of Tel-Assistance Service accounts at the end of the month.

(i)

Tariff requirement. Each LEC shall file a tariff to implement Tel-Assistance Service in compliance with this section and with applicable law within 30 days of the effective date of this section or within 30 days of beginning to provide service, whichever is later. No other revision, addition, or deletion unrelated to Tel-Assistance Service shall be contained in the tariff.

§23.147. Designation of Local Exchange Carriers as Eligible Telecommunications Providers to Receive Texas Universal Service Funds (TUSF).

(a)

Purpose. This section provides the requirements for the commission to designate local exchange companies (LECs) as eligible telecommunications providers (ETPs) to receive funds from the Texas Universal Service Fund (TUSF) under §23.133 of this title (relating to the Texas High Cost Universal Service Plan (THCUSP)) and §23.134 of this title (relating to the Small and Rural Incumbent Local Exchange Carrier (ILEC) Universal Service Plan). Only LECs designated by the commission as ETPs shall qualify to receive universal service support under these programs.

(b)

Definitions. The following words and terms when used in this section shall have the following meaning unless the context clearly indicates otherwise:

(1)

Certificated service area - The geographic area within which a LEC has been authorized to provide basic local telecommunications services pursuant to a certificate of convenience and necessity (CCN) or a certificate of operating authority (COA) issued by the commission.

(2)

ETP service area - The geographic area, determined by the commission, containing high cost rural areas which are eligible for TUSF support under §23.133 or §23.134 of this title.

(c)

Requirements for establishing ETP service areas.

(1)

THCUSP service area. THCUSP service area shall be based upon census block groups (CBGs) or other geographic area as determined appropriate by the commission. A LEC may be designated an ETP for any or all CBGs that are wholly or partially contained within its certificated service area. An ETP must serve an entire CBG, or other geographic area as determined appropriate by the commission, unless its certificated service area does not encompass the entire CBG, or other geographic area as determined appropriate by the commission.

(2)

Small and Rural ILEC Universal Service Plan service area. A Small and Rural ILEC Universal Service Plan service area for an ETP serving in a small or rural ILEC's territory shall include the entire study area of such small or rural ILEC.

(d)

Criteria for designation of ETPs.

(1)

LECs. A LEC, as defined in §23.3 of this title (relating to Definitions), shall be eligible to receive TUSF support pursuant to §23.133 or §23.134 of this title in each service area for which it seeks ETP designation if it meets the following requirements:

(A)

the LEC has been designated an eligible telecommunications carrier, pursuant to §23.148 of this title (relating to the Designation of Common Carriers as Eligible Telecommunications Carriers to Receive Federal Universal Service Funds (FUSF)), and provides the federally designated services to customers in order to receive federal universal service support;

(B)

the LEC defines its ETP service area pursuant to subsection (c) of this section and assumes the obligation to offer any customer in its ETP service area basic local telecommunications services, as defined in §23.133 of this title, at a rate not to exceed 150% of the ILEC's tariffed rate;

(C)

the LEC offers basic local telecommunications services using either its own facilities, purchased unbundled network elements (UNEs), or a combination of its own facilities, purchased UNEs, and resale of another carrier's services;

(D)

the LEC renders continuous and adequate service within the area or areas, for which the commission has designated it an ETP, in compliance with the quality of service standards defined in §23.61(c),(d) and (e) of this title (relating to Telephone Utilities);

(E)

the LEC offers services in compliance with §23.142 of this title (relating to Lifeline Service and Link Up Service) and §23.143 of this title (relating to Tel-Assistance Service); and

(F)

the LEC advertises the availability of, and charges for, supported services using media of general distribution.

(2)

ILECs. If the LEC is an ILEC, as defined in §23.3 of this title, it shall be eligible to receive TUSF support pursuant to §23.133 of this title in each service area for which it seeks ETP designation if it meets the requirements of paragraph (1) of this subsection and the following requirements:

(A)

if the ILEC is regulated pursuant to Chapter 58 or 59 of the Public Utility Regulatory Act it shall either:

(i)

reduce rates for services determined appropriate by the commission to an amount equal to its THCUSP support amount; or

(ii)

provide a statement that it agrees to a reduction of its THCUSP support amount equal to its CCL, RIC and intraLATA toll revenues.

(B)

if the ILEC is not regulated pursuant to Chapter 58 or 59 of the Public Utility Regulatory Act it shall reduce its rates for services determined appropriate by the commission by an amount equal to its THCUSP support amount.

(e)

Designation of more than one ETP.

(1)

In areas not served by small or rural ILECs, as defined in §23.134(b) of this title, the commission may designate, upon application, more than one ETP in an ETP service area so long as each additional provider meets the requirements of subsection (c) of this section.

(2)

In areas served by small or rural ILECs as defined in §23.134(b) of this title, the commission may designate additional ETPs if the commission finds that the designation is in the public interest.

(f)

Proceedings to designate LECs as ETPs.

(1)

Initial proceeding. In order to be considered in the initial proceeding under this section for designation as an ETP, a LEC operating with a certificate of convenience and necessity (CCN) or a certificate of operating authority (COA) as of the effective date of this section shall file its application to be designated as an ETP for a requested service area within 30 days of the effective date of this section.

(2)

Subsequent applications.

(A)

At any time, a LEC operating with a CCN or COA may seek commission approval to be designated an ETP for a requested service area.

(B)

In order to receive support under §23.133 or §23.134 of this title for exchanges purchased from an unaffiliated provider, the acquiring ETP shall file an application, within 30 days after the date of the purchase, to amend its ETP service area to include those geographic areas in the purchased exchanges that are eligible for support.

(C)

If an ETP receiving support under §23.133 or §23.134 of this title sells an exchange to an unaffiliated provider, it shall file an application, within 30 days after the date of the sale, to amend its ETP designation to exclude, from its designated service area, those exchanges for which it was receiving support.

(g)

Requirements for application for ETP designation and commission processing of application.

(1)

Requirements for notice and contents of application for ETP designation.

(A)

Notice of application. Notice shall be published in the Texas Register. The presiding officer may require additional notice. Unless otherwise required by the presiding officer or by law, the notice shall include at a minimum a description of the service area for which the applicant seeks designation, the proposed effective date of the designation, and the following language: "Persons who wish to comment on this application should notify the Public Utility Commission by (specified date, ten days before the proposed effective date). Requests for further information should be mailed to the Public Utility Commission of Texas, P.O. Box 13326, Austin, Texas 78711-3326, or you may call the Public Utility Commission's Office of Customer Protection at (512) 936-7120 or (888) 782-8477. Hearing- and speech-impaired individuals with text telephones (TTY) may contact the commission at (512) 936-7136, or use Relay Texas (800) 735-2989 to reach the commission's toll free number (888) 782-8477."

(B)

Contents of application. A LEC seeking to be designated as an ETP for a high cost service area in this state shall file with the commission an application complying with the requirements of this section. In addition to copies required by other commission rules, one copy of the application shall be delivered to the commission staff and one copy shall be delivered to the Office of Public Utility Counsel.

(i)

LEC. The application shall:

(I)

show that the applicant is a LEC as defined in §23.3 of this title;

(II)

show that the applicant has been designated by the commission as a telecommunications provider eligible for federal universal service support and show that the applicant offers federally supported services to customers pursuant to the terms of 47 United States Code §214(e) (relating to Provision of Universal Service) in order to receive federal universal service support;

(III)

specify the THCUSP or small and rural ILEC service area in which the applicant proposes to be an ETP, show that the applicant offers each of the designated services, as defined in §23.133 of this title, throughout the THCUSP or small and rural ILEC service area for which it seeks an ETP designation, and show that the applicant assumes the obligation to offer the services, as defined in §23.133 of this title, to any customer in the THCUSP or small and rural ILEC service area for which it seeks ETP designation;

(IV)

show that that the applicant does not offer the designated services, as defined in §23.133 of this title, solely through total service resale;

(V)

show that the applicant renders continuous and adequate service within the area or areas, for which it seeks designation as an ETP, in compliance with the quality of service standards defined in §23.61 (c), (d), and (e) of this title;

(VI)

show that the applicant offers Lifeline, Link Up, and Tel- Assistance services in compliance with §23.142 and §23.143 of this title;

(VII)

show that the applicant advertises the availability of and charges for designated services, as defined in §23.133 of this title, using media of general distribution;

(VIII)

a statement detailing the method and content of the notice the applicant has provided or intends to provide to the public regarding the application and a brief statement explaining why the notice proposal is reasonable and that the notice proposal complies with applicable law;

(IX)

provide a copy of the text of the notice;

(X)

state the proposed effective date of the designation; and

(XI)

provide any other information which the applicant wants considered in connection with the commission's review of its application.

(ii)

ILECs. If the applicant is an ILEC, in addition to the requirements of clause (i) of this subparagraph, the application shall show compliance with the requirements of subsection (d)(2) of this section.

(2)

Commission processing of application.

(A)

Administrative review. An application considered under this section may be reviewed administratively unless the LEC requests the application be docketed or the presiding officer, for good cause, determines at any point during the review that the application should be docketed.

(i)

The effective date of the ETP designation shall be no earlier than 30 days after the filing date of the application or 30 days after notice is completed, whichever is later.

(ii)

The application shall be examined for sufficiency. If the presiding officer concludes that material deficiencies exist in the application, the applicant shall be notified within 10 working days of the filing date of the specific deficiency in its application. The earliest possible effective date of the application shall be no less than 30 days after the filing of a sufficient application with substantially complete information as required by the presiding officer. Thereafter, any deadlines shall be determined from the 30th day after the filing of the sufficient application and information or from the effective date if the presiding officer extends that date.

(iii)

While the application is being administratively reviewed, the commission staff and the staff of the Office of Public Utility Counsel may submit requests for information to the applicant. Three copies of all answers to such requests for information shall be provided to the commission staff and the Office of Public Utility Counsel within 10 days after receipt of the request by the applicant.

(iv)

No later than 20 days after the filing date of the application or the completion of notice, whichever is later, interested persons may provide written comments or recommendations concerning the application to the commission staff. The commission staff shall and the Office of Public Utility Counsel may file with the presiding officer written comments or recommendations regarding the application.

(v)

No later than 35 days after the proposed effective date of the application, the presiding officer shall issue an order approving, denying, or docketing the application.

(B)

Approval or denial of application. The application shall be approved by the presiding officer if it meets the following requirements.

(i)

The provision of service constitutes basic local telecommunications service as defined in §23.133 of this title.

(ii)

Notice was provided as required by this section.

(iii)

The applicant has met the requirements contained in subsection (d) of this section.

(iv)

The ETP designation is consistent with the public interest in a technologically advanced telecommunications system and consistent with the preservation of universal service.

(C)

Docketing. If, based on the administrative review, the presiding officer determines that one or more of the requirements have not been met, the presiding officer shall docket the application. The requirements of subsection (d) may not be waived.

(D)

Review of the application after docketing. If the application is docketed, the effective date of the application shall be automatically suspended to a date 120 days after the applicant has filed all of its direct testimony and exhibits, or 155 days after the proposed effective date, whichever is later. Three copies of all answers to requests for information shall be filed with the commission within 10 days after receipt of the request. Affected persons may move to intervene in the docket, and a hearing on the merits shall be scheduled. A hearing on the merits shall be limited to issues of eligibility. The application shall be processed in accordance with the commission's rules applicable to docketed cases.

(h)

Relinquishment of ETP designation. A LEC may seek to relinquish its ETP designation.

(1)

Area served by more than one ETP. The commission shall permit a LEC to relinquish its ETP designation in any area served by more than one ETP upon:

(A)

written notification not less than 90 days prior to the proposed effective date of the relinquishment;

(B)

determination by the commission that the remaining ETP or ETPs can provide basic local service to the relinquishing LEC's customers; and

(C)

determination by the commission that sufficient notice of relinquishment has been provided to permit the purchase or construction of adequate facilities by any remaining ETP or ETPs.

(2)

Area where the relinquishing LEC is the sole ETP. In areas where the relinquishing LEC is the only ETP, the commission may permit it to relinquish its ETP designation upon:

(A)

written notification that the LEC seeks to relinquish its ETP designation; and

(B)

commission designation of a new ETP for the service area or areas through the auction procedure provided in subsection (i) of this section.

(3)

Relinquishment for non-compliance. The TUSF administrator shall notify the commission when the TUSF administrator is aware that an ETP is not in compliance with the requirements of subsection (d) of this section. The commission shall revoke the ETP designation of any LEC determined not to be in compliance with subsection (d) of this section.

(i)

Auction procedure for replacing the sole ETP in an area. In areas where a LEC is the sole ETP and seeks to relinquish its ETP designation, the commission shall initiate an auction procedure to designate another ETP. The auction procedure will use a competitive, sealed bid, single-round process to select a telecommunications provider meeting the requirements of subsection (g)(1) of this section that will provide basic local telecommunications service at the lowest cost.

(1)

Announcement of auction. Within 30 days of receiving a request from the last ETP in a service area to relinquish its designation, the commission shall provide notice in the Texas Register of the auction. The announcement shall at minimum detail the geographic location of the service area, the total number of access lines served, the forward-looking economic cost computed pursuant to §23.133 of this title, of providing basic local telecommunications service and the other services included in the benchmark calculation, existing tariffed rates, bidding deadlines, and bidding procedure.

(2)

Bidding procedure. Bids must be received by the TUSF administrator not later than 60 days from the date of publication in the Texas Register.

(A)

Every bid must contain:

(i)

the level of assistance per line that the bidder would need to provide all services supported by universal service mechanisms;

(ii)

information to substantiate that the bidder meets the eligibility requirements in subsection (d)(1) of this section; and

(iii)

information to substantiate that the bidder has the ability to serve the relinquishing ETP's customers.

(B)

The TUSF administrator shall collect all bids and within 30 days of the close of the bidding period request that the commission approve the TUSF administrator's selection of the successful bidder.

(C)

The commission may designate the lowest qualified bidder as the ETP for the affected service area or areas.

§23.148. Designation of Common Carriers as Eligible Telecommunications Carriers to Receive Federal Universal Service Funds.

(a)

Purpose. This section provides the requirements for the commission to designate common carriers as eligible telecommunications carriers to receive support from the federal universal service fund (FUSF). Only common carriers designated by the commission pursuant to 47 United States Code §214(e) (relating to Provision of Universal Service) as eligible for federal universal service support may qualify to receive universal service support under the FUSF.

(b)

Service areas. The commission may designate eligible telecommunications carrier service areas according to the following criteria.

(1)

Non-rural service area. To be eligible to receive federal universal service support in non-rural areas, a carrier must provide federally supported services pursuant to 47 Code of Federal Regulations §54.101 (relating to Supported Services for Rural, Insular, and High Cost Areas) throughout the area for which the carrier seeks to be designated an eligible telecommunications carrier.

(2)

Rural service area. In the case of areas served by a rural telephone company, as defined in §23.134 of this title (relating to the Small and Rural Incumbent Local Exchange Carrier (ILEC) Universal Service Plan), a carrier must provide federally supported services pursuant to 47 Code of Federal Regulations §54.101 throughout the study area of the rural telephone company in order to be eligible to receive federal universal service support.

(c)

Criteria for determination of eligible telecommunications carriers. A common carrier shall be designated as eligible to receive federal universal service support if it:

(1)

offers the services that are supported by the federal universal service support mechanisms under 47 Code of Federal Regulations §54.101 either using its own facilities or a combination of its own facilities and resale of another carrier's services; and

(2)

advertises the availability of and charges for such services using media of general distribution.

(d)

Criteria for determination of receipt of federal universal service support. In order to receive federal universal service support, a common carrier must:

(1)

meet the requirements of subsection (c) of this section;

(2)

offer Lifeline Service to qualifying low-income consumers in compliance with 47 Code of Federal Regulations Part 54, Subpart E (relating to Universal Service Support for Low-Income Consumers); and

(3)

offer toll limitation services in accordance with 47 Code of Federal Regulations §54.400 (relating to Terms and Definitions) and §54.401 (relating to Lifeline Defined).

(e)

Designation of more than one eligible telecommunications carrier.

(1)

Non-rural service areas. In areas not served by rural telephone companies, as defined in §23.134 of this title, the commission shall designate, upon application, more than one eligible telecommunications carrier in a service area so long as each additional carrier meets the requirements of subsection (b)(1) of this section and subsection (c) of this section.

(2)

Rural service areas. In areas served by rural telephone companies, as defined in §23.134 of this title, the commission may designate as an eligible telecommunications carrier a carrier that meets the requirements of subsection (b)(2) of this section and subsection (c) of this section if the commission finds that the designation is in the public interest.

(f)

Proceedings to designate eligible telecommunications carriers.

(1)

Initial proceeding. In order to be considered in the initial proceeding under this section for designation as an eligible telecommunications carrier, a common carrier operating as of the effective date of this section shall file its application to be designated as an eligible telecommunications carrier for a requested service area within 30 days of the effective date of this section.

(2)

Subsequent applications.

(A)

At any time, a common carrier may seek commission approval to be designated an ETP for a requested service area.

(B)

In order to receive support under this section for exchanges purchased from an unaffiliated carrier, the acquiring eligible telecommunications carrier shall file an application, within 30 days after the date of the purchase, to amend its eligible telecommunications carrier service area to include those geographic areas that are eligible for support.

(C)

If an eligible telecommunications carrier receiving support under this section sells an exchange to an unaffiliated carrier, it shall file an application, within 30 days after the date of the sale, to amend its eligible telecommunications carrier designation to exclude from its designated service area those exchanges for which it was receiving support.

(g)

Application requirements and commission processing of applications.

(1)

Requirements for notice and contents of application.

(A)

Notice of application. Notice shall be published in the Texas Register. The presiding officer may require additional notice. Unless otherwise required by the presiding officer or by law, the notice shall include at a minimum a description of the service area for which the applicant seeks eligibility, the proposed effective date of the designation, and the following statement: "Persons who wish to comment on this application should notify the Public Utility Commission of Texas by (specified date, 10 days before the proposed effective date). Requests for further information should be mailed to the Public Utility Commission of Texas, P.O. Box 13326, Austin, Texas 78711- 3326, or you may call the Public Utility Commission's Office of Customer Protection at (512) 936-7120 or (888) 782-8477. Hearing- and speech- impaired individuals with text telephones (TTY) may contact the commission at (512) 936-7136, or use Relay Texas (800) 735-2989 to reach the commission's toll free number (888) 782-8477."

(B)

Contents of application for each common carrier seeking eligible telecommunications carrier designation. A common carrier that seeks to be designated as an eligible telecommunications carrier shall file with the commission an application complying with the requirements of this section. In addition to copies required by other commission rules, one copy of the application shall be delivered to the commission's Regulatory Division and one copy shall be delivered to the Office of Public Utility Counsel. The application shall:

(i)

show that the applicant offers each of the services that are supported by the FUSF support mechanisms under 47 United States Code §254(c) (relating to Universal Service) either using its own facilities or a combination of its own facilities and resale of another carrier's services throughout the service area for which it seeks designation as an eligible telecommunications carrier;

(ii)

show that the applicant assumes the obligation to offer each of the services that are supported by the FUSF support mechanisms under 47 United States Code §254(c) to any consumer in the service area for which it seeks designation as an eligible telecommunications carrier;

(iii)

show that the applicant advertises the availability of, and charges for, such services using media of general distribution;

(iv)

show the service area in which the applicant seeks designation as an eligible telecommunications carrier;

(v)

contain a statement detailing the method and content of the notice the applicant has provided or intends to provide to the public regarding the application and a brief statement explaining why the proposed notice is reasonable and in compliance with applicable law;

(vi)

contain a copy of the text of the notice;

(vii)

contain the proposed effective date of the designation; and

(viii)

contain any other information which the applicant wants considered in connection with the commission's review of its application.

(C)

Contents of application for each common carrier seeking eligible telecommunications carrier designation and receipt of federal universal service support. A common carrier that seeks to be designated as an eligible telecommunications carrier and receive federal universal service support shall file with the commission an application complying with the requirements of this section. In addition to copies required by other commission rules, one copy of the application shall be delivered to the commission staff and one copy shall be delivered to the Office of Public Utility Counsel. The application shall:

(i)

comply with the requirements of subparagraph (B) of this paragraph;

(ii)

show that the applicant offers Lifeline Service to qualifying low- income consumers in compliance with 47 Code of Federal Regulations Part 54, Subpart E; and

(iii)

show that the applicant offers toll limitation services in accordance with 47 Code of Federal Regulations §54.400 and §54.401.

(2)

Commission processing of application.

(A)

Administrative review. An application considered under this section may be reviewed administratively unless the presiding officer, for good cause, determines at any point during the review that the application should be docketed.

(i)

The effective date shall be no earlier than 30 days after the filing date of the application or 30 days after notice is completed, whichever is later.

(ii)

The application shall be examined for sufficiency. If the presiding officer concludes that material deficiencies exist in the application, the applicant shall be notified within 10 working days of the filing date of the specific deficiency in its application. The earliest possible effective date of the application shall be no less than 30 days after the filing of a sufficient application with substantially complete information as required by the presiding officer. Thereafter, any deadlines shall be determined from the 30th day after the filing of the sufficient application and information or from the effective date if the presiding officer extends that date.

(iii)

While the application is being administratively reviewed, the commission staff and the staff of the Office of Public Utility Counsel may submit requests for information to the telecommunications carrier. Three copies of all answers to such requests for information shall be provided to the commission staff and the Office of Public Utility Counsel within 10 days after receipt of the request by the telecommunications carrier.

(iv)

No later than 20 days after the filing date of the application or the completion of notice, whichever is later, interested persons may provide the commission staff with written comments or recommendations concerning the application. The commission staff shall and the Office of Public Utility Counsel may file with the presiding officer written comments or recommendations regarding the application.

(v)

No later than 35 days after the proposed effective date of the application, the presiding officer shall issue an order approving, denying, or docketing the application.

(B)

Approval or denial of application.

(i)

An application filed pursuant to paragraph (1)(B) of this subsection shall be approved by the presiding officer if the application meets the following requirements:

(I)

the provision of service constitutes the services that are supported by the FUSF support mechanisms under 47 United States Code §254(c);

(II)

the applicant will provide service using either its own facilities or a combination of its own facilities and resale of another carrier's services;

(III)

the applicant advertises the availability of, and charges for, such services using media of general distribution;

(IV)

notice was provided as required by this section;

(V)

the applicant satisfies the requirements contained in subsection (b) of this section; and

(VI)

if, in areas served by a rural telephone company, the eligible telecommunications carrier designation is consistent with the public interest.

(ii)

An application filed pursuant to paragraph (1)(C) of this subsection shall be approved by the presiding officer if the application meets the following requirements:

(I)

the applicant has satisfied the requirements set forth in clause (i) of this subparagraph;

(II)

the applicant offers Lifeline Service to qualifying low-income consumers in compliance with 47 Code of Federal Regulations Part 54, Subpart E; and

(III)

the applicant offers toll limitation services in accordance with 47 Code of Federal Regulations §54.400 and §54.401.

(C)

Docketing. If, based on the administrative review, the presiding officer determines that one or more of the requirements have not been met, the presiding officer shall docket the application.

(D)

Review of the application after docketing. If the application is docketed, the effective date of the application shall be automatically suspended to a date 120 days after the applicant has filed all of its direct testimony and exhibits, or 155 days after the proposed effective date, whichever is later. Three copies of all answers to requests for information shall be filed with the commission within 10 days after receipt of the request. Affected persons may move to intervene in the docket, and a hearing on the merits shall be scheduled. A hearing on the merits shall be limited to issues of eligibility. The application shall be processed in accordance with the commission's rules applicable to docketed cases.

(E)

Waiver. In the event that an otherwise eligible telecommunications carrier requests additional time to complete the network upgrades needed to provide single-party service, access to enhanced 911 service, or toll limitation, the commission may grant a waiver of these service requirements upon a finding that exceptional circumstances prevent the carrier from providing single- party service, access to enhanced 911 service, or toll limitation. The period for the waiver shall not extend beyond the time that the commission deems necessary for that carrier to complete network upgrades to provide single- party service, access to enhanced 911 service, or toll limitation services.

(h)

Designation of eligible telecommunications carrier for unserved areas. If no common carrier will provide the services that are supported by federal universal service support mechanisms under 47 United States Code §254(c) to an unserved community or any portion thereof that requests such service, the commission, with respect to intrastate services, shall determine which common carrier or carriers are best able to provide such service to the requesting unserved community or portion thereof and shall order such carrier or carriers to provide such service for that unserved community or portion thereof.

(i)

Relinquishment of eligible telecommunications carrier designation. A common carrier may seek to relinquish its eligible telecommunications carrier designation.

(1)

Area served by more than one eligible telecommunications carrier. The commission shall permit a common carrier to relinquish its designation as an eligible telecommunications carrier in any area served by more than one eligible telecommunications carrier upon:

(A)

written notification not less than 90 days prior to the proposed effective date that the common carrier seeks to relinquish its designation as an eligible telecommunications carrier;

(B)

determination by the commission that the remaining eligible telecommunications carrier or carriers can offer federally supported services to the relinquishing carrier's customers; and

(C)

determination by the commission that sufficient notice of relinquishment has been provided to permit the purchase or construction of adequate facilities by any remaining eligible telecommunications carrier or carriers.

(2)

Area where the common carrier is the sole eligible telecommunications carrier. In areas where the common carrier is the only eligible telecommunications carrier, the commission may permit it to relinquish its eligible telecommunications carrier designation upon:

(A)

written notification not less than 90 days prior to the proposed effective date that the common carrier seeks to relinquish its designation as an eligible telecommunications carrier; and

(B)

commission designation of a new eligible telecommunications carrier for the service area or areas.

§23.150. Administration of Texas Universal Service Fund (TUSF).

(a)

Purpose. The provisions of this section establish the administration of the Texas Universal Service Fund (TUSF).

(b)

Programs included in the TUSF.

(1)

Section 23.133 of this title (relating to the Texas High Cost Universal Service Plan (THCUSP));

(2)

Section 23.134 of this title (relating to the Small and Rural Incumbent Local Exchange Carrier (ILEC) Universal Service Plan);

(3)

Section 23.136 of this title (relating to the Implementation of the Public Utility Regulatory Act §56.025);

(4)

Section 23.138 of this title (relating to Additional Financial Assistance (AFA));

(5)

Section 23.142 of this title (relating to Lifeline Service and Link Up Service);

(6)

Section 23.143 of this title (relating to Tel-Assistance Service);

(7)

Section 23.144 of this title (relating to Telecommunications Relay Service);

(8)

Section 23.145 of this title (relating to Specialized Equipment Distribution);

(9)

Section 23.147 of this title (relating to Designation of Local Exchange Carriers as Eligible Telecommunications Providers to Receive Texas Universal Service Funds (TUSF));

(10)

Section 23.148 of this title (relating to Designation of Common Carriers as Eligible Telecommunications Carriers to Receive Federal Universal Service Funds); and

(11)

Section 23.150 of this title (relating to Administration of Texas Universal Service Funds).

(c)

Responsibilities of the commission. The commission is the official governing agency for the TUSF, but may delegate the ministerial functions of TUSF administration to another entity (the TUSF administrator) through contractual agreement.

(1)

Establishing, monitoring, and supervising TUSF administration. The commission reserves the exclusive power to establish and revise rules related to the operation and administration of the TUSF and to monitor and supervise such operation and administration.

(2)

Annual audit. The commission annually shall provide for an audit of the TUSF by an independent auditor. The costs of the audit are costs of the commission that are incurred in administering the TUSF, and therefore shall be reimbursed from the TUSF.

(3)

Inquiry into administration of the TUSF. The commission may, upon its own motion, upon the petition of the commission staff or the Office of Public Utility Counsel, initiate an inquiry into any aspect of the administration of the TUSF. Any other party may initiate a complaint proceeding pursuant to the commission's procedural rules.

(4)

Selection of the TUSF administrator.

(A)

The commission shall have the sole discretion in the selection of the TUSF administrator. The selection of the TUSF administrator shall be based on a competitive bidding process. The commission shall issue a request for proposal, within 30 days of the effective date of this section, to solicit bids from qualified entities.

(B)

The TUSF administrator must meet the technical qualifications as provided in subsection (d)(1) of this section as well as other requirements as determined by the commission.

(5)

Contract term of the TUSF administrator. The commission shall determine the duration of the TUSF administrator's contract. Prior to expiration of the contract term, the commission may discharge the TUSF administrator of its duties upon 60- days written notice.

(d)

TUSF administrator. The TUSF administrator serves at the discretion of the commission.

(1)

Technical requirements of the TUSF administrator. The TUSF administrator shall:

(A)

be neutral and impartial, not advocate specific positions to the commission in proceedings not related to the administration of the universal service support mechanisms, and not have a direct financial interest in the universal service support mechanisms established by the commission;

(B)

possess demonstrated technical capabilities, competence, and resources to perform the duties of the TUSF administrator as described in this section; and

(C)

be bonded or bondable.

(2)

Duties of the TUSF administrator. The TUSF administrator will administer the TUSF in accordance with the rules set forth in this section and in accordance with the guidelines established by the commission in its contract with the TUSF administrator. The TUSF administrator's general duties shall include, but not be limited to:

(A)

managing the daily operations and affairs of the TUSF in an efficient, fair and competitively neutral manner;

(B)

taking steps necessary to ensure that all eligible telecommunications providers (ETPs) are in compliance with the relevant sections of this title under which they are receiving universal service support;

(C)

calculating and collecting the proper assessment amount from every telecommunications provider and verifying that all telecommunications providers are in compliance with the Public Utility Regulatory Act §56.022;

(D)

disbursing the proper support amounts, ensuring that only eligible recipients receive funds, and verifying that all recipients are in compliance with the section or sections of this title under which they are eligible to receive support;

(E)

taking steps necessary, including audits, to ensure that all telecommunications providers that are subject to the TUSF assessment are accurately reporting required information;

(F)

taking steps necessary, including audits, to ensure that all recipients of TUSF funds are accurately reporting required information;

(G)

submitting periodic summary reports to the commission regarding the administration of the TUSF in accordance with specifications established by the commission;

(H)

notifying the commission of any telecommunications providers that are in violation of any of the requirements of this section, §23.147 of this title and any reporting requirements; and

(I)

performing other duties as determined by the commission.

(e)

Transition from existing USF programs to the TUSF.

(1)

Transition requirements for the TUSF administrator. In order to facilitate a smooth transition from current support mechanisms in place prior to the effective date of this section to those that are mandated herein, the commission may appoint the current USF administrator, the Texas Exchange Carrier Association (TECA), to administer the TUSF on an interim basis, for a period of no less than six months beginning with the effective date of this section, provided that TECA structures a new TUSF Board of Directors to reflect the composition of the telecommunications industry as a whole. No more than 50% of the new Board shall represent incumbent local exchange carriers (ILECs). The remainder of the board shall be composed of competitive local service providers, interexchange carriers, wireless carriers, and any other telecommunications providers.

(2)

Continuation of assessments and disbursements for periods prior to the implementation of TUSF programs. The TUSF administrator shall administer all outstanding assessment and disbursement obligations to support mechanisms existing on the effective date of this section, for periods prior to the implementation date of the programs in subsection (b) of this section.

(3)

Implementation of programs included in the TUSF and termination of existing support mechanisms. The presiding officer in the proceeding conducted pursuant to subsection (f)(2)(A) of this section or the TUSF administrator shall ensure that the collection of assessments from telecommunication providers pursuant to subsection (g) of this section, the disbursement of support amounts to ETPs pursuant to subsection (h) of this section, and the termination of support mechanisms existing on the effective date of this section, occur on a uniform date. In the event that interim assessments and disbursements are necessary prior to the establishment of final assessment and disbursement levels, they shall be subject to true-up to the final level of funding.

(f)

Determination of the amount needed to fund the TUSF.

(1)

Amount needed to fund the TUSF. The amount needed to fund the TUSF shall be composed of the following elements.

(A)

Costs of TUSF programs. The TUSF administrator shall compute and include the costs of the following TUSF programs:

(i)

Texas High Cost Universal Service Plan, §23.133 of this title;

(ii)

Small and Rural ILEC Universal Service Plan, §23.134 of this title;

(iii)

Implementation of the Public Utility Regulatory Act §56.025, §23.136 of this title;

(iv)

Additional Financial Assistance, §23.138 of this title;

(v)

Lifeline Service and Link Up Service, §23.142 of this title;

(vi)

Tel-Assistance Service, §23.143 of this title;

(vii)

Telecommunications Relay Service, §23.144 of this title; and

(viii)

Specialized Equipment Distribution, §23.145 of this title.

(B)

Costs of implementation and administration of the TUSF. The TUSF implementation and administration costs shall include appropriate costs associated with the implementation and administration of the TUSF incurred by the commission (including the costs incurred by the TUSF administrator on behalf of the commission), any costs incurred by the Texas Department of Human Services caused by its administration of the Lifeline, Link Up, and Tel-Assistance programs, and any costs incurred by the Texas Commission for the Deaf and Hard of Hearing caused by its administration of the Specialized Equipment Distribution and the Telecommunications Relay Service programs.

(C)

Reserve for contingencies. The TUSF administrator shall establish a reserve for such contingencies as late payments and uncollectibles in an amount authorized by the commission.

(2)

Determination of amount needed.

(A)

Initial determination. Within 30 days of the effective date of this section, the commission shall initiate a proceeding to determine the amount needed to fund the TUSF for 1998 or the commission may delegate the initial determination to the TUSF administrator.

(B)

Subsequent determinations. After the initial determination, the TUSF administrator shall determine, on a periodic basis approved by the commission, the amount needed to fund the TUSF.

(g)

Assessments for the TUSF.

(1)

Providers subject to assessments. The TUSF assessments shall be payable by all telecommunications providers having access to the customer base; including but not limited to wireline and wireless providers of telecommunications services.

(2)

Basis for assessments. Assessments shall be made to each telecommunications provider based upon its monthly taxable telecommunications receipts reported by that telecommunications provider under Chapter 151, Tax Code.

(3)

Assessment. Each telecommunications provider shall pay its TUSF assessment each month as calculated using the following procedures.

(A)

Calculation of assessment rate. The TUSF administrator shall establish an assessment rate to be applied to all telecommunications providers.

(i)

Initial assessment rate. The initial assessment rate shall be computed by dividing the amount needed as determined pursuant to subsection (f)(2)(A) of this section, annualized, by the total of all telecommunications providers' taxable telecommunications receipts reported under Chapter 151, Tax Code for the period January 1, 1997, to December 31, 1997.

(ii)

Subsequent assessment rates. The TUSF administrator shall determine, on a periodic basis approved by the commission, subsequent assessment rates.

(B)

Calculation of assessment amount. Payments to the TUSF shall be computed by multiplying the assessment rate determined pursuant to subparagraph (A) of this paragraph by the basis for assessments as determined pursuant to subsection (g)(2) of this section.

(4)

Reporting requirements. Each telecommunications provider shall be required to report the following information to the commission or the TUSF administrator.

(A)

Initial reporting. No later than February 15, 1998, each telecommunications provider shall report total taxable telecommunications receipts reported under Chapter 151, Tax Code, for the period January 1, 1997 to December 31, 1997.

(B)

Subsequent reporting. Every month each telecommunications provider shall report taxable telecommunications receipts under Chapter 151, Tax Code for the month.

(5)

Recovery of assessments. A telecommunications provider may recover the amount of its TUSF assessment from its retail customers, except Lifeline, Link Up, and Tel- Assistance customers. The commission may order modifications in a telecommunications provider's method of recovery.

(A)

Retail customers' bills. In the event a telecommunications provider chooses to recover its TUSF assessment through a surcharge added to its retail customers' bills;

(i)

the surcharge must be listed on the retail customers' bills as "the universal service fund surcharge"; and

(ii)

the surcharge must be assessed as a percentage of every retail customers' bill, except Lifeline, Link Up, and Tel-Assistance customers.

(B)

Commission approval of surcharge mechanism. An ILEC choosing to recover the TUSF assessment through a surcharge on its retail customers' bills must file for commission approval of the surcharge mechanism.

(C)

Tariff changes. A telecommunications provider choosing to recover the TUSF assessment through a surcharge on its retail customers' bills shall file the appropriate changes to its tariff and provide supporting documentation for the method of recovery.

(D)

Recovery period. A single universal service fund surcharge shall not recover more than one month of assessments.

(6)

Disputing assessments. Any telecommunications provider may dispute the amount of its TUSF assessment. The telecommunications provider should endeavor to first resolve the dispute with the TUSF administrator. If the telecommunications provider and the TUSF administrator are unable to satisfactorily resolve their dispute, either party may petition the commission to resolve the dispute. Pending final resolution of disputed TUSF assessment rates and/or amounts, the disputing telecommunications provider shall remit all undisputed amounts to the TUSF administrator by the due date.

(h)

Disbursements from the TUSF to ETPs, ILECs, other entities and agencies.

(1)

ETPs, ILECs, other entities, and agencies.

(A)

ETPs. The commission shall determine whether an ETP qualifies to receive funds from the TUSF. An ETP qualifying for the following programs is eligible to receive funds from the TUSF:

(i)

Texas High Cost Universal Service Plan;

(ii)

Small and Rural ILEC Universal Service Plan;

(iii)

Lifeline Service and Link Up Service; and/or

(iv)

Tel-Assistance Service.

(B)

ILECs. The commission shall determine whether an ILEC qualifies to receive support from the following TUSF programs:

(i)

Implementation of the Public Utility Regulatory Act §56.025; and/or

(ii)

Additional Financial Assistance program.

(C)

Other entities. The commission shall determine whether other entities qualify to receive funds from the TUSF. Entities qualifying for the following programs are eligible to receive funds from the TUSF:

(i)

Telecommunications Relay Service; and/or

(ii)

Specialized Equipment Distribution program.

(D)

Agencies. The commission, the Texas Department of Human Services, the Texas Commission for the Deaf and Hard of Hearing, and the TUSF administrator are eligible for reimbursement of the costs directly and reasonably associated with the implementation of the provisions of the TUSF.

(2)

Reporting requirements.

(A)

ETPs. An ETP shall report to the TUSF administrator as required by the provisions of the section or sections under which it qualifies to receive funds from the TUSF.

(B)

Other entities. A qualifying entity shall report to the TUSF administrator as required by the provisions of the section or sections under which it qualifies to receive funds from the TUSF.

(C)

Agencies. A qualifying agency shall report its qualifying expenses to the TUSF administrator each month.

(3)

Disbursements. The TUSF administrator shall verify that the appropriate information has been provided by each ETP, local exchange carrier (LEC), other entities or agencies and shall issue disbursements to ETPs, LECs, other entities and agencies within 30 days of the due date of their reports.

(i)

True-up. The assessment amount determined pursuant to subsections (f) and (g) of this section shall be subject to true-up as determined by the TUSF administrator and approved by the commission. True-ups shall be limited to a three year period for under-reporting and a one year period for over-reporting.

(j)

Sale or transfer of exchanges.

(1)

An ETP that acquires exchanges from an unaffiliated small or rural ILEC receiving support for those exchanges pursuant to §23.134 of this title, shall receive the per- line support amount for which those exchanges were eligible prior to the sale or transfer.

(2)

An ETP that acquires exchanges from an unaffiliated ETP receiving support for those exchanges pursuant §23.133 of this title, shall receive the per-line support amount for which those exchanges were eligible prior to the transfer of the exchanges.

(k)

Proprietary information. The commission and the TUSF administrator are subject to the Texas Open Records Act, Texas Government Code, Chapter 552. Information received by the TUSF administrator from the individual telecommunications providers shall be treated as proprietary only under the following circumstances:

(1)

An individual telecommunications provider who submits information to the TUSF administrator shall be responsible for designating it as proprietary at the time of submission. Information considered to be confidential by law, either constitutional, statutory, or by judicial decision, may be properly designated as proprietary.

(2)

An individual telecommunications provider who submits information designated as proprietary shall stamp on the face of such information "PROPRIETARY PURSUANT TO PUC SUBST. R. §23.150(k)".

(3)

The TUSF administrator may disclose all information from an individual telecommunications provider to the telecommunications provider who submitted it or to the commission and its designated representatives without notifying the telecommunications provider.

(4)

All third party requests for information shall be directed through the commission. If the commission or the TUSF administrator receives a third party request for information that a telecommunications provider has designated proprietary, the commission shall notify the telecommunications provider. If the telecommunications provider does not voluntarily waive the proprietary designation, the commission shall submit the request and the responsive information to the Office of the Attorney General for an opinion regarding disclosure pursuant to the Texas Open Records Act, Texas Government Code, Chapter 552, Subchapter G.

This agency hereby certifies that the adoption has been reviewed by legal counsel and found to be a valid exercise of the agency's legal authority.

Filed with the Office of the Secretary of State on January 21, 1998.

TRD-9800970

Rhonda Dempsey

Rules Coordinator

Public Utility Commission of Texas

Effective date: February 10, 1998

Proposal publication date: August 26,1997

For further information, please call: (512) 936-7308

16 TAC §23.144

The Public Utility Commission of Texas (PUC) adopts new §23.144, relating to Telecommunications Relay Service, with changes to the proposed text published in the August 26, 1997 Texas Register (22 TexReg 8513). This new rule is adopted under Project Number 17714.

The section establishes procedures governing a statewide telecommunications relay service for individuals who are hearing-impaired or speech-impaired using specialized telecommunications devices and operator translations.

No comments were received.

References to the Public Utility Regulatory Act have been updated in subsections (b) and (e). These are the only changes from the proposed text. Certain of these changes relate to the adoption of 1997 Texas General Laws Chapter 149, which amends Texas Revised Civil Statutes Annotated Article 1446c-0, §§3.604, 3.608, 3.611, 3.612 and 3.613 without reference to the repeal of that article by 1997 Texas General Laws Chapter 166, §9. For the text of the amendment to §3.604, see the note following Texas Utilities Code Annotated §56.110 (Vernon 1998). For the text of the amendment to §3.608, see the note following Texas Utilities Code Annotated §56.021 (Vernon 1998). For the text of amendments to §§3.611, 3.612 and 3.613, see the note following Texas Utilities Code Annotated §56.102 (Vernon 1998).

This section is adopted under the Public Utility Regulatory Act, Texas Utilities Code Annotated §§14.002, 56.021, and 56.102(a) (Vernon 1998) (PURA) and 1997 Texas General Laws Chapter 149. PURA §14.002 provides the Public Utility Commission with the authority to make and enforce rules reasonably required in the exercise of its powers and jurisdiction; PURA §56.021 authorizes the commission to adopt and enforce rules regarding a universal service fund; and PURA §56.102(a) authorizes the commission to adopt and enforce rules establishing a statewide telecommunications relay access service for the hearing-impaired and speech-impaired.

Cross Index to Statutes: PURA §§14.002, 56.021, and 56.102(a); and 1997 Texas General Laws Chapter 149.

§23.144. Telecommunications Relay Service.

(a)

Purpose. The provisions of this section are intended to establish a statewide telecommunications relay service for individuals who are hearing-impaired or speech- impaired using specialized telecommunications devices and operator translations. Telecommunications relay service shall be provided on a statewide basis by one telecommunications carrier. Certain aspects of telecommunications relay service operations are applicable to local exchange carriers and other telecommunications providers.

(b)

Definitions. The following words and terms, when used in this section, shall have the following meaning unless the context clearly indicates otherwise:

(1)

Carrier of choice - An option that allows an individual to choose an interexchange carrier for long distance calls made through TRS.

(2)

Equipment distribution program - The program described in Substantive Rule §23.145 of this title (relating to Specialized Equipment Distribution).

(3)

Hearing carryover - A technology that allows an individual who is speech- impaired to hear the other party in a telephone conversation and to use specialized telecommunications devices to send communications through the TRS operator.

(4)

Mandatory minimum standards - The standards established by the Federal Communications Commission, outlining basic mandatory TRS.

(5)

Print translations - the temporary storage of a message in an operator's screen during the actual process of relaying a conversation.

(6)

Relay Texas - The name by which statewide TRS is known.

(7)

Relay Texas administrator - The individual employed by the commission to oversee the administration of statewide TRS.

(8)

TRS - Telecommunications relay service, a service using oral and print translations by either live or automated means between individuals who are hearing-impaired or speech-impaired who use specialized telecommunications devices and others who do not have such devices. Unless specified in the text, this term shall refer to intrastate telecommunications relay service only.

(9)

TRS carrier - The telecommunications carrier selected by the commission to provide statewide TRS.

(10)

TUSF - The Texas Universal Service Fund authorized by Texas Utilities Code Annotated §56.021 and 1997 Texas General Laws Chapter 149, §4.

(11)

Voice carryover - A technology that allows an individual who is hearing- impaired to speak directly to the other party in a telephone conversation and to use specialized telecommunications devices to receive communications through the TRS operator.

(c)

Provision of TRS. TRS shall provide individuals who are hearing-impaired or speech- impaired with access to the telecommunications network in Texas equal to that provided to other customers.

(1)

Components of TRS. TRS shall meet the mandatory minimum standards defined in subsection (b)(4) of this section and further shall consist of the following:

(A)

switching and transmission of the call;

(B)

oral and print translations by either live or automated means between individuals who are hearing-impaired or speech-impaired who use specialized telecommunications devices and others who do not have such devices;

(C)

sufficient operators and facilities to meet the following grade and quality of service standards established by the commission for TRS:

(i)

the operator answering performance standards listed in §23.61(e)(3)(A)(i) and (3)(B) of this title (relating to Telephone Utilities); and

(ii)

not more than one out of one hundred calls shall encounter a busy signal when calling the TRS numbers;

(D)

appropriate procedures for handling emergency calls;

(E)

confidentiality regarding existence and content of conversations;

(F)

capability of providing sufficient information to allow calls to be accurately billed;

(G)

capability of providing for technologies such as hearing carryover or voice carryover;

(H)

operator training to relay the contents of the call as accurately as possible without intervening in the communications;

(I)

operator training in American Sign Language and familiarity with the special communications needs of individuals who are hearing-impaired or speech-impaired;

(J)

capability for callers to place calls through TRS from locations other than their primary location and to utilize alternate billing arrangements;

(K)

capability of providing both inbound and outbound intrastate and interstate service;

(L)

capability for carrier of choice; and

(M)

other service enhancements approved by the commission.

(2)

Conditions for interstate service. The TRS carrier shall not be reimbursed from the Texas Universal Service Fund (TUSF) for the cost of providing interstate TRS. Interstate TRS shall be funded through the interstate jurisdiction as mandated by the Federal Communications Commission. Separate funds and records shall be maintained for intrastate TRS and interstate TRS.

(3)

Rates and charges. The following rates and charges shall apply to TRS:

(A)

Local calls. The calling and called parties shall bear no charges for calls originating and terminating within the same toll-free local calling scope.

(B)

Intrastate long distance calls. The TRS carrier shall discount its tariffed intrastate rates by 50% for TRS users.

(C)

Access charges. Local exchange carriers shall not impose access charges on calls that make use of this service and which originate and terminate within the same toll-free local calling scope.

(D)

Billing and collection services. Upon request by the TRS carrier, local exchange carriers shall provide billing and collection services in support of this service at just and reasonable rates.

(d)

Contract for the TRS carrier.

(1)

Selection. On or before April 1, 2000, the commission shall issue a request for proposal and select a carrier to provide statewide TRS based on the following criteria: price, the interests of individuals who are hearing-impaired and speech- impaired in having access to a high quality and technologically-advanced telecommunications system, and all other factors listed in the commission's request for proposals. The commission shall consider each proposal in a manner that does not disclose the contents of the proposal to competing offerers. The commission's determination shall include evaluations of charges for the service, service enhancements proposed by the offerers, and technological sophistication of the network proposed by the offerers. The commission shall make a written award of the contract to the offerer whose proposal is the most advantageous to the state.

(2)

Location. The operator centers used to provide statewide TRS shall be located in Texas.

(3)

Contract administration.

(A)

Contract amendments. All recommendations for amendments to the contract shall be filed with the executive director of the commission on June 1 of each year. The executive director is authorized to approve or deny all amendments to the contract between the TRS carrier and the commission, provided, however, that the commission specifically shall approve any amendment that will increase the cost of TRS.

(B)

Reports. The TRS carrier and telecommunications providers shall submit reports of their activities relating to the provision of TRS upon request of the commission or the Relay Texas administrator.

(C)

Compensation. The TRS carrier shall be compensated by the TUSF for providing TRS at the rates, terms, and conditions established in its contract with the commission, subject to the following conditions:

(i)

Reimbursement shall include the TRS costs that are not paid by the calling or the called party, except the TRS carrier shall not be reimbursed for the 50% discount set forth in subsection (c)(3)(B) of this section.

(ii)

Reimbursement may include a return on the investment required to provide the service and the cost of unbillable and uncollectible calls placed through the service, provided that the cost of unbillable and uncollectible calls shall be subject to a reasonable limitation as determined by the commission.

(iii)

The TRS carrier shall submit a monthly report to the commission justifying its claims for reimbursement under the contract. Upon approval by the commission, the TUSF shall make a disbursement in the approved amount.

(e)

Advisory Committee. The commission shall appoint an Advisory Committee, to be known as the Relay Texas Advisory Committee (RTAC) to assist the commission in administering TRS and the equipment distribution program, as specified by Texas Utilities Code Annotated §56.111 (Vernon 1998) and 1997 Texas General Laws Chapter 149, §3. The Relay Texas administrator shall serve as a liaison between the RTAC and the commission. The Relay Texas administrator shall ensure that the RTAC receives clerical and staff support, including a secretary or court reporter to document RTAC meetings.

(1)

Composition. The commission shall appoint RTAC members based on recommended lists of candidates submitted by the organizations named as follows. The RTAC shall be composed of:

(A)

one deaf person recommended by the Texas Deaf Caucus;

(B)

one deaf person recommended by the Texas Association of the Deaf;

(C)

one hearing-impaired person recommended by Self-Help for the Hard of Hearing;

(D)

one hearing-impaired person recommended by the American Association of Retired Persons;

(E)

one deaf and blind person recommended by the Texas Deaf/Blind Association;

(F)

one speech-impaired person and one speech-impaired and hearing- impaired person recommended by the Coalition of Texans with Disabilities;

(G)

two representatives of telecommunications utilities, one representing a local exchange carrier and one representing a telecommunications carrier other than a local exchange carrier, chosen from a list of candidates provided by the Texas Telephone Association;

(H)

two persons, at least one of whom is deaf, with experience in providing relay services, recommended by the Texas Commission for the Deaf; and

(I)

two public members recommended by organizations representing consumers of telecommunications services.

(2)

Conditions of membership. The term of office of each RTAC member shall be two years. A member whose term has expired shall continue to serve until a qualified replacement is appointed. In the event a member cannot complete his or her term, the commission shall appoint a qualified replacement to serve the remainder of the term. RTAC members shall serve without compensation but shall be entitled to reimbursement at rates established for state employees for travel and per diem incurred in the performance of their official duties, provided such reimbursement is authorized by the Texas Legislature in the General Appropriations Act.

(3)

Responsibilities. The RTAC shall undertake the following responsibilities:

(A)

monitor the establishment, administration, and promotion of the statewide TRS;

(B)

advise the commission regarding the pursuit of services that meet the needs of individuals who are hearing-impaired or speech-impaired in communicating with other users of telecommunications services;

(C)

advise the commission regarding issues related to the contract between the TRS carrier and the commission, including any proposed amendments to such contract;

(D)

advise the commission and the Texas Commission for the Deaf and Hard of Hearing, at the request of either commission, regarding issues related to the equipment distribution program.

(4)

Committee activities report. After each RTAC meeting, the Relay Texas administrator shall prepare a report to the commission regarding the RTAC activities and recommendations.

(A)

The Relay Texas administrator shall file in Central Records under Project Number 13928, and provide to each commissioner, a report containing:

(i)

the minutes of the meeting;

(ii)

a memo summarizing the meeting; and

(iii)

a list of items, recommended by the RTAC, for the Relay Texas administrator to discuss with the TRS carrier, including issues related to the provisioning of the service that do not require amendments to the contract.

(B)

Within 20 days after a report is filed, any commissioner may request that one or more items described in the report be placed on an agenda to be discussed during an open meeting of the commission. If no commissioner requests that the list be placed on an agenda for an open meeting, the report is deemed approved by the commission.

(5)

Evaluation of RTAC costs and effectiveness. The commission shall evaluate the advisory committee annually. The evaluation shall be conducted by an evaluation team appointed by the executive director of the commission. The commission liaison, RTAC members, and other commission employees who work directly or indirectly with the RTAC, TRS, or the equipment distribution program shall not be eligible to serve on the evaluation team. The evaluation team will report to the commission in open meeting each August of its findings regarding:

(A)

the committee's work;

(B)

the committee's usefulness; and

(C)

the costs related to the committee's existence, including the cost of agency staff time spent in support of the committee's activities.

This agency hereby certifies that the adoption has been reviewed by legal counsel and found to be a valid exercise of the agency's legal authority.

Filed with the Office of the Secretary of State on January 21, 1998.

TRD-9800972

Rhonda Dempsey

Rules Coordinator

Public Utility Commission of Texas

Effective date: February 10, 1998

Proposal publication date: August 26, 1997

For further information, please call: (512) 936-7308

16 TAC §23.145

The Public Utility Commission of Texas adopts new §23.145, relating to the Specialized Equipment Distribution, with changes to the proposed text published in the August 26, 1997 Texas Register (22 TexReg 8516). This new rule is adopted under Project Number 17510.

The section establishes procedures, including those for reimbursement of certain vendors, for an equipment distribution program that will provide financial assistance to certain deaf, hearing- impaired, or speech-impaired individuals for the purchase of specialized equipment to provide functionally equivalent telephone network access. The equipment distribution program was authorized by 1997 Texas General Laws Chapter 149.

No comments were received.

In order to accommodate restructuring of all rules relating to the Universal Service Fund in a more organized manner, the commission adopts new §23.145 with an effective date of June 1, 1998. In the meantime, the equipment distribution program will be governed by the provisions of existing §23.53, relating to the Universal Service Fund. Pursuant to Texas Government Code Annotated §2001.036(a)(1) (Vernon 1998), the commission in this circumstance must state in the section any effective date beyond 20 days after filing with the secretary of state. For this reason, the commission adds new subsection (e) specifying the June 1, 1998 effective date.

References to the Public Utility Regulatory Act have also been updated in subsections (b) and (c). Certain of these changes relate to the adoption of 1997 Texas General Laws Chapter 149, which amends Texas Revised Civil Statutes Annotated Article 1446c-0, §§3.604, 3.608, 3.611, 3.612 and 3.613 without reference to the repeal of that article by 1997 Texas General Laws Chapter 166, §9. For the text of the amendment to §3.604, see the note following Texas Utilities Code Annotated §56.110 (Vernon 1998). For the text of the amendment to §3.608, see the note following Texas Utilities Code Annotated §56.021 (Vernon 1998). For the text of amendments to §§3.611, 3.612 and 3.613, see the note following Texas Utilities Code Annotated §56.102 (Vernon 1998).

This section is adopted under the Public Utility Regulatory Act, Texas Utilities Code Annotated §14.002 (Vernon 1998) (PURA), which provides the Public Utility Commission with the authority to make and enforce rules reasonably required in the exercise of its powers and jurisdiction, and 1997 Texas General Laws Chapter 149, which requires the commission to adopt rules that allow a telecommunications utility to recover the costs of the equipment distribution program for which it has been assessed by the universal service fund.

Cross Index to Statutes: PURA §14.002 and 1997 Texas General Laws Chapter 149.

§23.145. Specialized Distribution Program.

(a)

Purpose. The provisions of this section are intended to establish procedures for an equipment distribution program and for reimbursement to vendors who submit vouchers issued under the program.

(b)

Definitions. The following words and terms, when used in this section, shall have the following meaning unless the context clearly indicates otherwise:

(1)

EDP voucher - a voucher issued by TCDHH under the equipment distribution program, in accordance with its rules, that an eligible individual may use to acquire eligible specialized telecommunications devices from a vendor of such equipment.

(2)

Equipment distribution program (EDP) - the program to assist individuals who are deaf or hard of hearing or who have an impairment of speech to purchase specialized telecommunications devices for telephone service access, authorized by 1997 Texas General Laws Chapter 149, to be jointly administered by the commission and TCDHH.

(3)

RTAC - the Relay Texas Advisory Committee authorized by the Public Utility Regulatory Act, Texas Utilities Code Annotated §56.110 (Vernon 1998) (PURA) and 1997 Texas General Laws Chapter 149.

(4)

TCDHH - the Texas Commission for the Deaf and Hard of Hearing.

(5)

TUSF - the Texas Universal Service Fund authorized by PURA, Texas Utilities Code Annotated §56.021 (Vernon 1998) and 1997 Texas General Laws Chapter 149.

(c)

Program responsibilities.

(1)

TCDHH responsibilities. TCDHH is responsible for:

(A)

Adopting rules and procedures regarding the issuance of EDP vouchers to eligible individuals;

(B)

Establishing a database containing sufficient information to enable the commission to verify the issuance of a particular EDP voucher; and

(C)

Depositing amounts paid by eligible individuals for EDP vouchers into the TUSF.

(2)

Commission responsibilities. The commission is responsible for:

(A)

Adopting rules and procedures regarding the reimbursement to vendors for properly redeemed EDP vouchers;

(B)

Administering the TUSF to ensure adequate funding of the equipment distribution program; and

(C)

Appointing and providing administrative support for the RTAC, in accordance with PURA, Texas Utilities Code Annotated §56.110 and §56.112 (Vernon 1998).

(d)

Program administration.

(1)

Vendor registration. To facilitate the timely reimbursement of EDP vouchers, the TUSF administrator may specify that a vendor who accepts EDP vouchers shall register with the administrator by providing the vendor's name, contact person, address, telephone number, facsimile number (if available), and information sufficient to permit the administrator to reimburse the vendor by direct deposit rather than by check.

(2)

Vendor reimbursement. A vendor who exchanges an EDP voucher for the purchase of approved equipment in accordance with the terms of the equipment distribution program specified by TCDHH shall be eligible for reimbursement of the lesser of the face value of the EDP voucher or the actual price of the equipment. TUSF disbursements shall be made only upon receipt from the vendor of a completed EDP voucher and a receipt showing the actual price of the equipment exchanged for the EDP voucher. TUSF disbursements may also be subject to such other limitations or conditions as determined by the commission to be just and reasonable, including investigation of whether the presentation of an EDP voucher represents a valid transaction for equipment under the equipment distribution program. The TUSF administrator shall ensure that reimbursement to vendors for EDP vouchers shall be issued within 45 days after the EDP voucher is received by the TUSF administrator.

(e)

Effective Date. This section is effective on June 1, 1998.

This agency hereby certifies that the adoption has been reviewed by legal counsel and found to be a valid exercise of the agency's legal authority.

Filed with the Office of the Secretary of State on January 21, 1998.

TRD-9800971

Rhonda Dempsey

Rules Coordinator

Public Utility Commission of Texas

Effective date: June 1, 1998

Proposal publication date: August 26, 1997

For further information, please call: (512) 936-7308