Goto Section: 54.302 | 54.304 | Table of Contents

FCC 54.303
Revised as of December 6, 2018
Goto Year:2018 | 2020
  § 54.303   Eligible Capital Investment and Operating Expenses.

   (a) Eligible Operating Expenses. Each study area's eligible operating
   expenses for purposes of calculating universal service support pursuant
   to subparts K and M of this part shall be adjusted as follows:

   (1) Total eligible annual operating expenses per location shall be
   limited as follows: Calculate Exp(Ŷ + 1.5 * mean square error of the
   regression), where

   Ŷ = α̂ + β̂1X1 + β̂2X2 + β̂3X3

   α̂, β̂1, β̂2, and β̂3 are the coefficients from the regression,

   X1 is the natural log of the number of housing units in the study area,

   X2 is the natural log of the number of density (number of housing units
   per square mile), and

   X3 is the square of the natural log of the density

   (2) Eligible operating expenses are the sum of Cable and Wire
   Facilities Expense, Central Office Equipment Expense, Network Support
   and General Expense, Network Operations Expense, Limited Corporate
   Operations Expense, Information Origination/Termination Expense, Other
   Property Plant and Equipment Expenses, Customer Operations Expense:
   Marketing, and Customer Operations Expense: Services.

   (3) For purposes of this section, the number of housing units will be
   determined per the most recently available U.S Census data for each
   census block in that study area. If a census block is partially within
   a study area, the number of housing units in that portion of the census
   block will be determined based upon the percentage geographic area of
   the census block within the study area.

   (4) Notwithstanding the provisions of paragraph (a) of this section,
   total eligible annual operating expenses for 2016 will be limited to
   the total eligible annual operating expenses as defined in this section
   plus one half of the amount of total eligible annual expense as
   calculated prior to the application of this section.

   (5) For any study area subject to the limitation described in this
   paragraph, a required percentage reduction will be calculated for that
   study area's total eligible annual operating expenses. Each category or
   account used to determine that study area's total eligible annual
   operating expenses will then be reduced by this required percentage
   reduction.

   (6) For a period of five years following the implementation of
   paragraph (a) of this section, the total eligible annual operating
   expenses per location in paragraph (a) shall be adjusted annually to
   account for changes to the Department of Commerce's Gross Domestic
   Product Chain-type Price Index (GDP-CPI).

   (7) For those study areas where a majority of the housing units are on
   Tribal lands, as determined by the Wireline Competition Bureau, and
   meet the following conditions, total eligible annual operating expenses
   per location shall be limited by calculating Exp (Ŷ + 2.5 * mean square
   error of the regression): The carrier serving the study area has not
   deployed broadband service of 10 Mbps download/1 Mbps upload to 90
   percent or more of the housing units on the Tribal lands in its study
   area and unsubsidized competitors have not deployed broadband service
   of 10 Mbps download/1 Mbps upload to 85 percent or more of the housing
   units on the Tribal lands in its study area.

   (b) Loop Plant Investment allowances. Data submitted by rate-of-return
   carriers for purposes of obtaining high-cost support under subparts K
   and M of this part may include any Loop Plant Investment as described
   in paragraph (c)(1) of this section and any Excess Loop Plant
   Investment as described in paragraph (h) of this section, but may not
   include amounts in excess of the Annual Allowed Loop Plant Investment
   (AALPI) as described in paragraph (d) of this section. Amounts in
   excess of the AALPI will be removed from the categories or accounts
   described in paragraph (c)(1) of this section either on a direct basis
   when the amounts of the new loop plant investment can be directly
   assigned to a category or account, or on a pro-rata basis in accordance
   with each category or account's proportion to the total amount in each
   of the categories and accounts described in paragraph (c)(1) of this
   section when the new loop plant cannot be directly assigned. This
   limitation shall apply only with respect to Loop Plant Investment
   incurred after the effective date of this rule. If a carrier's required
   Loop Plant Investment exceeds the limitations set forth in this section
   as a result of deployment obligations in § 54.308(a)(2), the carrier's
   AALPI will be increased to the actual Loop Plant Investment required by
   the carrier's deployment obligations, subject to the limitations of the
   Construction Allowance Adjustment in paragraph (f) of this section.

   (c) Definitions. For purposes of determining loop plant investment
   allowances, the following definitions apply:

   (1) Loop Plant Investment includes amounts booked to the accounts used
   for subparts K and M of this part, loop plant investment.

   (2) Total Loop Plant Investment equals amounts booked to the categories
   described in paragraph (b)(1) of this section, adjusted for inflation
   using the Department of Commerce's Gross Domestic Product Chain-type
   Price Index (GDP-CPI), as of December 31 of the Reference Year.
   Inflation adjustments shall be based on vintages where possible or
   otherwise calculated based on the year plant was put in service.

   (3) Total Allowed Loop Plant Investment equals Total Loop Plant
   Investment multiplied by the Loop Depreciation Factor.

   (4) Loop Depreciation Factor equals the ratio of total loop accumulated
   depreciation to gross loop plant during the Reference Year.

   (5) Reference Year is the year prior to the year the AALPI is
   determined.

   (d) Determination of AALPI. A carrier subject to this section shall
   have an AALPI set equal to its Total Loop Plant Investment for each
   study area multiplied by an AALPI Factor equal to (0.15 times the Loop
   Depreciation Factor + 0.05). The Administrator will calculate each rate
   of return carrier's AALPI for each Reference Year.

   (e) Broadband Deployment AALPI adjustment: The AALPI calculated in
   paragraph (d) of this section shall be adjusted by the Administrator
   based upon the difference between a carrier's broadband availability
   for each study area as reported on that carrier's most recent Form 477,
   and the weighted national average broadband availability for all
   rate-of-return carriers based on Form 477 data, as announced annually
   by the Wireline Competition Bureau in a Public Notice. For every
   percentage point that the carrier's broadband availability exceeds the
   weighted national average broadband availability for the Reference
   Year, that carrier's AALPI will be reduced by one percentage point. For
   every percentage point that the carrier's broadband availability is
   below the weighted national average broadband availability for the
   Reference Year, that carrier's AALPI will be increased by one
   percentage point.

   (f) Construction allowance adjustment. Notwithstanding any other
   provisions of this section, a rate-of-return carrier must exclude from
   the data it submits for the purposes of obtaining high-cost support
   under subpart K or subpart M of this part the amount of Loop Plant
   Investment associated with a new construction project that exceeds the
   Maximum Average Per Location Construction Project Limitation for that
   project as determined by the Administrator according to the following
   formula:

   (1) Maximum Average Per Location Construction Project Loop Plant
   Investment Limitation equals the inflation adjusted equivalent to
   $10,000 in the Reference Year calculated by multiplying $10,000 times
   the applicable annual GDP-CPI. This inflation adjusted amount will be
   normalized across all study areas by multiplying the product above by
   (the Loop Cap Adjustment Factor times the Construction Limit Factor)

   Where:

   The Loop Cap Adjustment Factor equals the lesser of 1.0 or the
   annualized monthly per loop limit described in § 54.302 (i.e., $3,000)
   divided by the unadjusted per loop support amount for the study area
   (the annual HCLS and CAF-BLS support amount per loop in the study not
   capped by § 54.302)

   and the

   Construction Limitation Factor equals the study area Total Loop
   Investment per Location divided by the overall Total Loop Investment
   per Location for all rate-of-return study areas.

   (2) This limitation shall apply only with respect to Loop Plant
   Investment for which invoices were received by the carrier after the
   effective date of this rule.

   (3) A carrier subject to this section will maintain documentation
   necessary to demonstrate compliance with the above limitation.

   (g) Study area data. For each Reference Year, the Administrator will
   publish the following data for each study area of each rate-of-return
   carrier:

   (1) AALPI

   (2) The Broadband Deployment AALPI Adjustment

   (3) The Maximum Average Per Location Construction Project Loop Plant
   Investment Limitation

   (4) The Loop Cap Adjustment Factor

   (5) The Construction Limit Factor

   (h) Excess Loop Plant Investment carry forward. Loop Plant Investment
   in a Reference Year in excess of the AALPI may be carried forward to
   future years and included in AALPI for such subsequent years, but may
   not cause the AALPI to exceed the Total Allowed Loop Plant Investment.

   (i) A carrier subject to this section will maintain subsidiary records
   of accumulated Excess Loop Plant Investment for accounts referenced in
   paragraph (c)(1) of this section in addition to the corresponding
   depreciation accounts. In the event a carrier makes Loop Plant
   Investment for an account at a level below the AALPI for the account,
   the carrier may reduce accumulated Excess Loop Plant Investment
   effective for the Reference Year by an amount up to, but not in excess
   of the amount by which AALPI for the Reference Year exceeds Loop Plant
   Investment for the account during the same year.

   (j) Treatment of unused AALPI. In the event a carrier's Loop Plant
   Investment is below its AALPI in a given Reference Year, there will be
   no carry forward to future years of unused AALPI. The Administrator's
   recalculation of AALPI for each Reference Year will reflect the revised
   AALPI, Loop Depreciation Factor, Total Loop Plant Investment, and Total
   Allowed Loop Plant Investment for the Reference Year.

   (k) Special circumstances. The AALPI for Loop Plant Investment may be
   adjusted by the Administrator by adding the applicable adjustment below
   to the amount of AALPI for the year in which additions to plant are
   booked to the accounts described in paragraph (c)(1) of this section,
   associated with any of the following:

   (1) Geographic areas within the study area where there are currently no
   existing wireline loop facilities;

   (2) Geographic areas within the study area where grant funds are used
   for Loop Plant Investment;

   (3) Geographic areas within the study area for which loan funds were
   disbursed for the purposes of Loop Plant Investment before the
   effective date of this rule; and

   (4) Construction projects for which the carrier, prior to the effective
   date of this rule, had awarded a contract to a vendor for a loop plant
   construction project within the study area.

   (l) Documentation requirements. The Administrator will not make these
   adjustments without appropriate documentation from the carrier.

   (m) Minimum AALPI. If a carrier has an AALPI that is less than $4
   million in any given year, the carrier shall be allowed to increase its
   AALPI for that year to the lesser of $4 million or its Total Allowed
   Loop Plant Investment.

   [ 81 FR 24337 , Apr. 25, 2016, as amended at  82 FR 14339 , Mar. 20, 2017;
    82 FR 16127 , Apr. 3, 2017;  82 FR 22903 , May 19, 2017;  83 FR 18964 , May
   1, 2018 ; 83 FR 30884 , July 2, 2018]

   Effective Date Note: At  81 FR 24337 . Apr. 25, 2016, § 54.303 was added.
   Paragraph (b) contains information collection and recordkeeping
   requirements and will not become effective until approval has been
   given by the Office of Management and Budget.

   Editorial Note: At  83 FR 18950 , 18964, May 1, 2018, § 54.303 was amended
   by adding paragraph (a)(6), however, the agency provided two different
   (a)(6)'s and we were not sure which one to add correctly, so the
   amendment could not be incorporated due to inaccurate amendatory
   instruction.

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Goto Section: 54.302 | 54.304

Goto Year: 2018 | 2020
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