Before the FEDERAL COMMUNICATIONS COMMISSION

Washington, D.C. 20554

In the Matter of ) ) North American Numbering Plan ) CC Docket No. 92-237 Administration Billing and Collection ) CC Docket No. 99-200 Agent Requirements )

) DA 03-1892 )

COMMENTS

NECA, the parent organization for NBANC, Inc. (NBANC), the current North

American Numbering Plan (NANP) Billing and Collection Agent, herein provides comments on

the proposed technical requirements to be used in preparing the solicitation for the billing and

collection agent’s next term of administration. In addition, NECA questions the rationale and

efficiency of using the Federal Acquisition Regulation System (FARS) process for selection of

the billing and collection agent.

I. Requirements Document

The Public Notice1 presents proposed technical requirements that, in turn, are based

on a set of technical requirements submitted by the North American Numbering Council

(NANC) in 2001.2 These requirements provide an accurate representation of most of the

billing and collection agent’s responsibilities, but need to be updated to reflect changes in

1 The Wireline Competition Bureau Seeks Comment on the North American Numbering Plan Billing and Collection Agent’s Technical Requirements, CC Docket Nos. 99-237 and 99-200, Public Notice, DA 03-1892 (rel. June 9, 2003) (Public Notice). 2 See letter from John R. Hoffman, NANC Chair to Dorothy Attwood, Chief, Common Carrier Bureau (Apr. 10, 2001).

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circumstances since that time. Of these, the most significant has been the Commission’s

decision to include the NANP Administrator’s funds in the FCC’s financial statements. This

action significantly increased the billing and collection agent’s responsibilities over those

expressed in the proposed technical requirements.

As noted in the attached letter to the Commission, NBANC does not believe that

inclusion of these funds in the Commission’s budget is warranted.3 If, however, the technical

requirements are to be used to provide a Statement of Work in the solicitation for the billing and

collection agent, it is imperative that the additional functions required by the inclusion of these

monies in the FCC’s budget be reflected in the requirements for the billing and collection agent.

Specifically, inclusion of these funds in the FCC’s budget has substantially increased the

number and frequency of reports required by the Commission. Since this change occurred, for

example, NBANC has been required to meet on a bi-monthly basis with the Managing

Director’s office to review financial information. In addition, NBANC operations are now

subject to audit by the Commission’s external auditor. These audits are in addition to those

conducted internally and by NBANC’s external auditors. This additional requirement requires

the attention and time of administrator staff to ensure that the Commission’s auditors have full

access to relevant information.

Potential bidders should be made be aware of the additional requirements imposed on

the billing and collection agent prior to submitting bids. To assist the Commission in this

3See letter from John A. Ricker, Chief Executive Officer, NBANC to Marlene H. Dortch, Office of the Secretary (June 10, 2003), included as Attachment B.

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process, attached is a complete list of financial reporting requirements currently associated with

administering NANP administration funds.4

At the same time, the requirements document proposes that the billing and collection

agent conduct its own audits every other year, rather than annually as is now done. In this case,

the Commission may wish to consider continuing the current annual audit requirement as sound

practice. Requiring the billing and collection agent to conduct audits every year does not add

significant burdens and, in fact, has streamlined the process for the FCC auditors’ financial

review.

Finally, the proposed requirements document provides detailed specifications for billing

carriers and participating nations. These procedures appear to omit the current requirement that

the billing and collection agent file a proposed contribution factor with the FCC on an annual

basis approximately 60 days prior to the start of the each funding year.

Item 4 of the proposed requirements document appears to suggest that each domestic

carrier is to calculate its own payment and remit that amount to the billing and collection agent.

Currently, the Billing and Collection Agent calculates and renders bills to each

telecommunications service provider based on the approved contribution factor, and then

collects these amounts either as one-time annual payments or, if the annual requirement is

greater than $1,200, twelve monthly installments. The proposed technical requirements should

specify whether this practice should be continued.

4 Included as Attachment A. Only two items on this list are requirements that are included in the Commission’s technical specifications document. Those items include a reference to the relevant section of the document.

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II. Use of the Federal Acquisition Regulation System

The Public Notice states that the entity selected to serve as the billing and collection

agent will be expected to perform its duties in accordance with the terms and conditions of a

Federal Acquisition Regulation System (FARS)-based contract.5

The FARS process governs the acquisition by contract of supplies and services for the

use of the Federal Government. The Commission’s decision to use the FARS process for

selection of the numbering billing and collection agent appears to stem from its earlier

determination that monies collected to fund number administration are to be included in the

Commission’s financial statements.

NBANC opposes this determination. As explained in detail in the aforementioned

NBANC letter of June 10, 2003, to the Commission, NANP funds are not “government funds”

under relevant federal accounting standards. These amounts are collected entirely from the

private sector and foreign governments and are used solely to fund private sector functions.

Just as the decision to include these funds in the Commission’s financial statements has

imposed unnecessary costs on the administrator, a decision to utilize the FARS process in this

context is likely to add more unnecessary costs and reduce efficiency. Based on the

procurement process for pool administration and number administration (not yet awarded), it

appears that the Commission will need to utilize outside contractors in developing the Request

for Bids and reviewing proposals for the billing and collection agent function. When a contract

is signed, a contract administrator will need to be appointed. These additional functions will add

unnecessary costs to a process that heretofore has operated smoothly and efficiently.

5

The FARS process must be used for procurement of goods and services used by the

Commission to carry out agency functions. The billing and collection function for operation of

the NANP is not a government function, however. Therefore, the FARS process is not

required and should not be adopted. The Commission should instead continue its current

practice of establishing requirements for the billing and collection agent by rule or order.

Historically this has proven to be an efficient, cost effective means of administering billing and

collection requirements for the NANP and, more recently, thousands-block number pooling.

III. Conclusion

The Commission should update the requirements associated with the billing, collection

and disbursement functions for Number Administration by including the modifications suggested

herein. The Commission should also consider whether the FARS process is applicable in this

instance and whether its use will, in fact, provide a more efficient means of conducting the

business of billing, collecting and disbursement of funds for the purpose of funding number

administration.

Respectfully submitted,

NATIONAL EXCHANGE CARRIER ASSOCIATION, INC. By: /s/ Richard A. Askoff Richard A. Askoff Its Attorney June 23, 2002 80 South Jefferson Road Whippany, New Jersey 07981 (973) 884-8000

5 FARS rules and regulations are codified in Title 48 of the Code of Federal Regulations.

Attachment A

NBANC List 06/23/03

FCC REQUIRED FINANCIAL DOCUMENTS FOR NANP ADMINISTRATION FUNDS

MONTHLY Monthly report reflecting receipts and disbursements supporting cash activity. Potentially, financial reporting to the Department of the Treasury will be required. Reports provided to the FCC will be used to report monthly to the Treasury. Monthly schedules to support the Department of Treasury’s new reporting requirements of cash and investments held outside the Treasury. QUARTERLY Quarterly trial balances received by the 21st of the subsequent month. Quarterly financial statement in accordance with OMB Bulletin 01-09. Quarterly detailed aging report (30, 60. 90, 180 days) of the Accounts Receivables that agrees to the general ledger. Schedule is to be received by the 21st of the month subsequent to the end of the quarter. Methodology for the calculation of any related allowances for doubtful accounts as reported on the quarterly financial statements. Quarterly subsidiary schedules to support the financial statement investment balances as reported on the quarterly financial statements. The schedule should include investment type, holder of the security, CUSIP number, name of investment, maturity dates and unamortized premium or discount. Quarterly detail schedule of interest receivable amounts and related interest rates as reported on the quarterly financial statements. Quarterly subsidiary ledgers for the “Due to Contributors” and “Accounts Payables” amounts as reported on the quarterly financial statements. Quarterly schedule showing administrative amounts withdrawn from funds as of the trial balance date. Included in that schedule, report residual administrative amounts from the previous quarter. Quarterly Treasury Report on Receivable data provided 3 weeks after the end of the quarter to the FCC who will then be responsible for the final submission of the data to the Department of Treasury. ANNUAL Year-end trial balance to and supporting schedules for the year-end FACTS 1 submission to the Treasury. ADDITIONAL Answer data requests from Clifton Gunderson as part of audit of FCC financials; respond to Provide By Client (PBC) lists Additional information and reports may be requested as required.

Attachment A

NBANC List 06/23/03

OTHER NANPA FUND DOCUMENTS SUBMITTED TO THE FCC

MONTHLY Monthly status report and fund performance projection submitted to the NBANC Board and the FCC TAPD and OMD staff QUARTERLY Quarterly financial statements submitted at the end of October, January, April and July* - Item 12 ANNUAL May fund requirement and contribution factor filing* November financial statements audit and agreed upon procedures report* - Item 13. Document asks for audit after yr 1, 3 and 5. Original 1997 document had the same requirement. Paragraph 88 in FCC97-372, 3rd Report and Order, 10/9/97 talks about an annual audit. . Jan. 26, 1998 letter to Richard Metzger from Bruce Baldwin adds two audits, after year 2 and 4. OTHER Delinquency reports for current funding year – could be considered part of items relating to collection procedures. * Required

Attachment B

NBANC North American Numbering Plan John A. Ricker Billing and Collection Agent Chief Executive Officer 80 S. Jefferson Road Whippany, NJ 07981 (973) 884-8085 jricker@neca.org

June 10, 2003 Marlene H. Dortch Office of the Secretary Federal Communications Commission 445 Twelfth St., SW Room TW-A325 Washington, DC 20554 Re: Inclusion of NANP funds in FCC Financial Statements Dear Ms. Dortch:

In 2002, the Federal Communications Commission determined for the first time that funds collected by North American Billing and Collection, Inc. (NBANC) for purposes of administering the North American Numbering Plan (NANP) should be included in the Commission’s financial statements. No public comment was sought or obtained by the Commission before making this determination, nor was a formal order issued containing the Commission’s decision. NBANC understands that the Commission is now in the process of preparing its 2003 financial statements, and that a similar conclusion may have already been reached this year with respect to NANP funds.

NBANC objects to the treatment of NANP funds in this manner. NANP funds are not “government funds” under relevant federal accounting standards. These amounts are collected entirely from the private sector and are used solely to fund private sector functions. Moreover, as the Commission is well aware, a portion of NANP funds is collected from foreign countries that participate in the NANP. Inclusion of domestic private sector and internationally generated funds in the Federal Communication Commission’s budget is inappropriate and should not be continued in 2003.

Last year, representatives of the National Exchange Carrier Association, Inc. (NECA) and Reed Smith LLP met several times with Commission staff to discuss this issue. At staff’s request, NECA and Reed Smith provided the Commission with an extensive legal memorandum, which demonstrated clearly that relevant federal accounting standards do not support inclusion of NANP funds in the FCC’s financial

statements. The Commission did not respond to the arguments set forth in the memorandum, and indeed has never explained its basis for including NANP funds in its financial statements.

The fact that the Commission incorrectly included these funds in last year’s statements should not serve as binding precedent for a repeat in 2003. The NBANC Board of Directors accordingly has requested that I transmit an updated copy of the memo to you on behalf of NBANC. NBANC respectfully suggests that the Commission again consider the arguments presented by the memorandum, and refrain from including NANP funds in its financial statements in 2003.

In addition, the international Board members of NBANC have requested that I emphasize to you the view that it is not only irregular but also totally inappropriate for funds that include international contributions to be treated as though they were U.S. government funds.

Finally, NBANC submits that the Commission should adhere to the basic principles of the Administrative Procedure Act and provide the public an opportunity for comment on this matter, including the basis for which the Commission has drawn its conclusions, well in advance of releasing its 2003 financial statements. Sincerely,

Attachment cc: J. Rogovin M Reger T. Peterson E. Einhorn C. Callahan S. Williams

ANALYSIS OF WHETHER CARRIER FUNDS COLLECTED AND DISBURSED BY NBANC SHOULD BE INCLUDED IN THE FCC’S

FINANCIAL STATEMENTS

Prepared for

The FEDERAL COMMUNICATIONS COMMISSION

June 2003

by

NORTH AMERICAN BILLING AND COLLECTION, Inc.

(“NBANC”)*

*A previous version of this memorandum was submitted to the Commission by NECA and Reed Smith LLP in June 2002. This version has been updated to reflect the views of the NBANC Board of Directors.

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Analysis of Whether Carrier Funds Collected and Disbursed By NBANC Should be Included in the FCC’s Financial Statements

Table of Contents

I. STATEMENT OF THE ISSUE AND CONCLUSION ...............................................4

II. INTRODUCTION AND EXECUTIVE SUMMARY..................................................4

III. BACKGROUND AND MATERIAL FACTS ..............................................................6

A. History of The North American Numbering Plan...................................6

B. The North American Numbering Plan Administrator ........................... 10

C. The FCC’s Numbering Functions and Funding Therefor ...................... 11

D. Funding for the NANPA and NECA’s Creation of NBANC...................... 11

E. Number Pooling............................................................................. 12

F. Sources and Uses of Funds ............................................................. 14

IV. LEGAL ANALYSIS .....................................................................................................14

A. Neither NBANC, the NANPA, nor the Programs They Fund and Administer Meet the Standards for Inclusion as Part of the FCC’s Reporting Entity ............................................................................ 14

1. The “Conclusive” Criterion ...................................................................15

2. The "Indicative" Criteria ........................................................................15

a. The NANPA and NBANC Do Not Exercise Any Sovereign Power of the Federal Government ..............................................16

b. NBANC and NeuStar Are Not Owned by the Federal Government .................................................................................18

c. NBANC and the NANPA Are Not under the Direct Administrative Control of the FCC.............................................18

d. NBANC and the NANPA Do Not Carry out Federal Missions and Objectives.............................................................................19

e. NBANC and the NANPA Do Not Determine the Outcome or Distribution of Federal Services .................................................20

f. NBANC and NeuStar Have No Fiduciary Duty to the FCC ......20

g. NBANC and NeuStar Hope to Continue in Existence................20

V. CONCLUSION .............................................................................................................22

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EXHIBITS

A. NUMBERING RESOURCES MANAGED BY THE NANPA.................................23

B. THE INDIVIDUAL PROGRAMS FUNDED BY NBANC DO NOT MEET THE INDICATIVE CRITERIA 25

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ANALYSIS OF WHETHER CARRIER FUNDS COLLECTED AND DISBURSED BY NBANC SHOULD BE INCLUDED IN THE FCC’S

FINANCIAL STATEMENTS

I. STATEMENT OF THE ISSUE AND CONCLUSION

A question has arisen as to whether the Federal Communications Commission (“FCC” or “Commission”) should include in its financial statements the funds collected by North American Billing and Collection, Inc. (“NBANC”) to defray NBANC’s expenses and, primarily, to support the cost of administering the North American Numbering Plan (“NANP”).1 The issue presented is: Does NBANC satisfy the conclusive or indicative criteria established by the Federal Accounting Standards Advisory Board (“FASAB”) for inclusion as part of the FCC’s Reporting Entity for financial disclosure purposes?2

A review of the relevant law and accounting principles leads to the conclusion that NBANC does not meet the applicable criteria and that the funds NBANC collects should not be included in the FCC’s financial statements because those funds come solely from carriers in the private sector within and outside the United States and are used solely to fund private sector functions of these carriers.

In addition, the NANP operates in several nations beyond the United States. As a result, the North American Numbering Plan Administration (“NANPA”) and NBANC perform functions on behalf of these sovereign nations, not just for the United States. The principle of international comity alone would dictate that the FCC not report NBANC’s revenues, or even a pro rata share of those revenues, as if they were under the sole control of the FCC or even the United States government.

II. INTRODUCTION AND EXECUTIVE SUMMARY

On May 22, 2002, representatives of the Commission and the National Exchange Carrier Association, Inc. (“NECA”) met to discuss potential inclusion in the FCC’s financial reports of the funds collected and disbursed by NBANC, a wholly owned NECA subsidiary. At

1 Funds collected and disbursed by NBANC are also used to defray costs associated with number pooling,

as discussed infra. While the focus of this memorandum will be on the funds used to offset the costs associated with administration of the NANP, the same analysis pertains to the funds used to offset the costs of administering number pooling.

2 There has been some discussion regarding whether the FASAB criteria should be applied to NBANC, as the relevant organization, or to the programs NBANC funds (certain aspects of numbering administration and number pooling). Based on a review of the relevant law, it appears that the criteria should be applied to NBANC itself, as discussed infra, rather than to the programs NBANC funds. Even if the analysis were to be done on a program-by-program basis, however, the bottom line would be the same, i.e., that the carrier funds collected and disbursed by NBANC are private funds, used for private purposes, and should not be included in the FCC’s financial statements.

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the conclusion of the May 22 meeting, NECA offered to prepare a thorough analysis of the laws, regulations and accounting principles relevant to the issues that were discussed.

Subsequent to the May 22 meeting, NECA’s counsel reviewed all applicable law and relevant precedents and, along with the Commission’s Chief Financial Officer, met informally with representatives of the Government Accounting Office (“GAO”), including a member of the FASAB, to gain a better understanding of the criteria that should be applied in determining whether to include a particular entity or program as part of a federal agency’s “Reporting Entity” for financial disclosure purposes.

At the meeting, GAO staff offered that the conclusive and indicative criteria enunciated by the FASAB in its “Statement of Financial Concepts No. 2,” as well as the law regarding federal appropriations, are relevant to a decis ion of whether to include funds in federal financial statements, but that, in the end, the outcome of any analysis always depends on the factual details of the particular situation, rather than on a blind application of accounting principles.

The relevant facts regarding NBANC are as follows:

1. NBANC is a wholly owned subsidiary of NECA, a non-profit, non-stock association of incumbent local exchange carriers (“LECs”);

2. None of the funds collected and disbursed by NBANC are appropriated by Congress or derive from federal taxes or the imposition of regulatory fees. Rather, NBANC’s funds are contributed by all carriers using NANP resources that provide services to end user customers, in amounts set by NBANC and subject to review by the FCC;

3. All of the funds in question are collected from and disbursed to the private sector by NBANC itself, without intervention by the federal government;

4. The FCC does not supervise the day-to-day operations of either NBANC or the NANPA, but only establishes broad policies and, from time to time, resolves disputes regarding numbering issues that cannot be handled elsewhere. Both NBANC and the NANPA (through its independent administrator) perform, within the parameters of FCC regulation3 and the regulation by bodies of othe r sovereign countries, ministerial functions that are needed by the U.S., Canadian and Caribbean telecommunications industry and that have always been performed by the industry;

5. The NANP is a resource that is shared by a number of countries in addition to the U.S. and those nations contribute politically significant funds to NBANC for the NANP’s administration;

3 NANPA must also consider the regulatory requirements of the other countries participating in the

NANP in the performance of its ministerial duties.

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6. Neither NBANC, NANP, nor the independent administrator of the NANP exercise sovereign powers of the United States;

7. It is unclear who would be responsible for debt collection in the event of a U.S. carrier or foreign participant’s refusal to pay its NBANC contribution because, to date, there has never been a need to file an action against a carrier to collect funds to support the administration of the NANP. Even if a U.S. based body were authorized to undertake such a debt collection, its authorization would be restricted to carriers operating within its own jurisdiction and could not extend to those entities outside its jurisdiction that contribute funds to NBANC.

8. The Telecommunications Act of 19964 simply codified the FCC’s already existing jurisdiction over those portions of the NANP that pertain to the U.S. and merely formalized a role that the FCC, with the consensus of the industry, had already decided to perform: “to create or designate one or more impartial entities to administer telecommunications numbering and to make such numbers available on an equitable basis.”5 Moreover, the Telecom Act made explicit that the costs of establishing telecommunications numbering administration arrangements (currently paid for out of the very funds at issue here) were to be borne by all telecommunications carriers (i.e., the private sector) on a competitively neutral basis;6 and

9. The billing and collection of funds to support NANPA’s work and the disbursement of those funds by NBANC will likely continue indefinitely.

Evaluating these facts in light of FASAB’s conclusive and indicative criteria (which are discussed below), and the other potentially relevant factors suggested by GAO, neither NBANC, nor the funds collected from carriers and disbursed by NBANC for administration of the NANP, should be included by the FCC in its financial statements.

III. BACKGROUND AND MATERIAL FACTS

A. History of The North American Numbering Plan

The NANP is the industry standard for the use of telephone numbers within the public switched telephone network (“PSTN”) for World Zone 1 Countries. The NANP applies to the United States (along with its territories and possessions), Canada, Bermuda, and many Caribbean nations, including Anguilla, Antigua & Barbuda, Bahamas, Barbados, British Virgin Islands, Cayman Islands, Dominica, Dominican Republic, Grenada, Jamaica, Montserrat, St. Kitts and Nevis, St. Lucia, St. Vincent and the Grenadines, Trinidad and Tobago, and Turks & 4 Telecommunications Act of 1996, Pub. L. No. 104-104, 110 Stat. 56 (1996) (“Telecom Act”).

5 Id., § 251(e).

6 Id., § 251(e)(2).

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Caicos. The NANP complies with International Telecommunications Union (“ITU”) Recommendation E.164, the international standard for numbering plans.

The NANP was created in 1947 by AT&T and its subsidiary Bell Telephone Laboratories, to enable customers to dial their own long distance calls (a procedure also known as “Direct Distance Dialing” or “DDD”), rather than having to place all their long distance calls through a toll operator. AT&T initially assigned 86 areas codes (or Numbering Plan Areas “NPAs”) to the continental U.S. and Canada. Alaska, Hawaii, Bermuda and the Caribbean nations were not originally a part of the NANP. Alaska and Hawaii were added in 1957; Bermuda and the Caribbean members were added in 1958. The NANP first became operative for the calling public with the introduction of DDD in Englewood, New Jersey, on November 10, 1951. DDD was then expanded throughout the United States and Canada, with rural areas trailing urban areas in availability.

Initially, AT&T and its subsidiary Bell Operating Companies (“BOCs”) administered the NANP wholly at their own cost. AT&T set overall policies for the NANP and administered Area Codes. The largest LEC within an Area Code (which was normally the local BOC in the U.S.) administered Central Office Codes within its Area Code. In a monopoly environment, there were few disputes over administration of the NANP and, as a result, little need for exercise by the FCC of its oversight authority or of oversight in other member countries by their respective regulators or governments.7

The 1984 Bell System Divestiture, in which AT&T was separated from its BOC subsidiaries, affected administration of the NANP. AT&T was required to transfer its portion of the NANP’s administration to what became Bell Communications Research, Inc. (“Bellcore”), a subsidiary of all seven original Regional BOCs (“RBOCs”).8 Central Office Code administration, however, remained the same after the Divestiture.

7 While it was always assumed that the Commission had jurisdiction over numbering issues, the source of

that authority was not specifically articulated until 1987, see discussion infra. One of the very few early instances where the FCC did become involved in numbering matters, however, was the Commission’s Order approving an agreement between Wireline Telephone Carriers and Radio Common Carriers (“RCCs”) with respect to interconnection of their networks. Interconnection between Wireline Telephone Carriers and Radio Common Carriers engaged in the provision of Domestic Public Land Mobile Radio Service under Part 21 of the Commission’s Rules, Memorandum Opinion and Order, 63 FCC 2d 87 (1977) (“RCC Interconnection Order”). Included in the agreement was a requirement that the wireline carriers would “make available seven digit telephone numbers (North American Numbering Plan) for each paging device or two-way mobile unit of an RCC subscriber.” Id., at 93, Appx. A, ¶6. Interestingly, the actual assignment of telephone numbers to RCCs was specifically made subject to the Bell System’s written criteria for the assignment of such numbers, without any comment from the Commission. Id.

8 U.S. v. Western Electric Co., 552 F Supp 131 (D.D.C. 1982), aff'd sub nom., Maryland v. U.S., 460 U.S. 1001 (1983).

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In 1992, the FCC decided, in response to many changes within the telecommunications industry, to commence an inquiry into administration of the NANP, including an examination of who should be its administrator and how administration of the NANP could be improved.9 Two years later, the FCC proposed new rules to govern the NANP’s administration. 10 In its NANP NPRM, the FCC noted several key developments. These included the expansion of the NANP’s jurisdiction beyond Area and Central Office Codes to include responsibility for administering other numbering resources (many of which are noted below) and the general centralization of most industry numbering activities in a single Industry Numbering Committee (“INC”).11

The FCC also identified four distinct functions related to NANP administration: “policy-making; dispute-resolution; maintenance of number databases; and processing applications for numbers.”12 In addition, the Commission specifically articulated that it had “plenary jurisdiction” over telephone numbering resources based upon Sections 2(a) (which gives the FCC jurisdiction over “all interstate and foreign communication by wire or radio … which originates … or is received within the United States”) and 201(a) (which gives the Commission authority over physical interconnections and through routes between carriers, along with associated facilities and regulations) of the Communications Act of 1934, as amended (“Act”).13 The FCC then determined that “[t]elephone numbers are an indispensable part of the

9 Administration of the North American Numbering Plan, Notice of Inquiry, 7 FCC Rcd 6837 (1992)

(“NANP NOI”). ”). Non-U.S. governments and entities affected by the NANP were early to express their concerns that the FCC not regulate the NANP as if it applied only to the United States. E.g., Comments of Telecom Canada, filed December 24, 1991. “Telecom Canada encourages the FCC to take account of the sensitivities of those NANP users that are under separate government and regulatory environments.” See also, Letter from S. Earl Morris, Deputy Prime Minister, St Christopher and Nevis, to William F. Caton, FCC, dated June 10, 1994. One of the concerns expressed by the Deputy Prime Minister in his letter was that his nation not be “charged excessively by any future [numbering] administrations.” It seems very clear that at least one soverign nation and NANP member does not regards its payments for NANP administration as federal funds under the control of the FCC.

10 Administration of the North American Numbering Plan, Notice of Proposed Rulemaking, 9 FCC Rcd 2068 (1994) (“NANP NPRM”).

11 Id. at ¶¶ 2, 7. The INC is a standards-setting and policy-making industry group sponsored by the Alliance for Telecommunications Industry Solutions (“ATIS”), which itself is an American National Standards Institute (“ANSI”) accredited standards body. Many carriers and manufacturers participate in the INC’s work.

12 Id. at ¶ 7.

13 47 U.S.C. §§ 152(a) and 201(a).

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‘facilities and regulations’ for operating these ‘through routes’ of physical interconnection between carriers and are therefore subject to our plenary jurisdiction under the Act.”14

The FCC tentatively concluded that administration of the NANP would best be “performed by a single, non-government entity established by this Commission and, therefore, subject to our oversight but also separate from this Commission and not closely identified with any particular industry segment.”15

In 1995, the FCC released its NANP First Report on the administration of the NANP.16 The FCC specifically rejected proposals that would have had the Commission itself administer or directly supervise the administration of the NANP. Rather, the Commission chose to place day-to-day responsibility for NANP administration in a neutral third party, with the FCC establishing and enforcing broad numbering policies.17 Effectively, the Commission decided that it, along with the INC and a new federal advisory committee it proposed to establish, would perform two of the four previously identified NANP administrative functions—policy making and dispute resolution—and that the neutral third-party administrator alone would perform the other two functions—database management and applications processing.

Also, in making its decision in the NANP First Report to keep day-to-day NANP administration in the private sector, the FCC noted that the NANP serves many other sovereign nations besides the United States and that there was considerable support from non-U.S. entities for retaining industry management of the NANP.18 Additionally, the FCC recognized the general success of the INC in resolving many numbering issues without the need for any intervention from the FCC or any other member nations’ governments. Indeed, the FCC concluded that “[i]n many respects, INC today directs the efforts of [the] NANP administrator.”19 The FCC did, however, create a new federal advisory committee, the North American Numbering Council (“NANC”), consisting of industry, consumer, and government representatives from the U.S. and other NANP Member Countries, to provide additional oversight and to seek to resolve numbering policy disputes through consensus.20

14 NANP NPRM , at ¶ 8. See also, The Need to Promote Competition and Efficient Use of Spectrum for

Radio Common Carrier Services, Declaratory Ruling, 2 FCC Rcd 2910 (1987) (in which the FCC asserted its plenary authority over Central Office Codes, pursuant to Section 20 of the Act).

15 Id. at ¶ 18 (emphasis added).

16 Administration of the North American Numbering Plan, Report and Order, 11 FCC Rcd 821 (1995) (“NANP First Report”).

17 Id. at ¶ 24.

18 Id. at ¶ 28.

19 Id. at ¶ 31.

20 Id. at ¶¶ 39-53.

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The FCC also determined in the NANP First Report that the new NANP administrator, once selected, should administer not only Area Codes- and U.S. Central Office Codes21 and other numbering resources that were then being administered by Bellcore and the BOCs, but should also perform any other tasks assigned by the NANC. However, as a neutral superintendent, the new NANP administrator would not be permitted to make numbering policies or to resolve disputes. Those functions would be preserved for the FCC and other countries’ regulators, the NANC, and the industry itself through the INC.22 The Commission delegated the responsibility for the selection of a neutral entity to become the NANP administrator to the NANC.23 Funding issues, which are discussed below, were also decided by the FCC in the NANP First Report.

B. The North American Numbering Plan Administrator

At the present time, the NANP administrator (“NANPA”) is NeuStar, Inc. (“NeuStar”), a privately held corporation headquartered in Washington, D.C. NeuStar’s URL is www.neustar.com. The NANPA’s URL is www.nanpa.com. The NANPA manages the following numbering resources: Area Codes; ANI II Digits; Carrier Identification Codes (“CICs”); N11 Codes; Vertical Service Codes (“VSCs”); Central Office Codes, including 456-NXX Codes; 500-NXX Codes; 555-Line Numbers; 800-855 Line Numbers; 900-NXX Codes and Non-Dialable Toll Points (“NDTPs”). The NANPA maintains records for and assigns these resources according to applicable rules or guidelines; collects data related to the use of, and forecasted need for, additional numbering resources; plans for future numbering resource needs; conducts audits of numbering assignees; and works with the FCC and other domestic and foreign regulatory agencies to reclaim unused or improperly used numbering resources.24 The specific resources administered by NANPA are described in detail in Exhibit “A” hereto.25

21 Not all Central Office Codes within the NANP are administered by the NANPA. For example, Central

Office Codes in those area codes assigned to Canada, are administered by the Canadian Numbering Administrator (“CNA"), an independent third party administrator established by the Canadian regulator and funded by Canadian carriers.

22 Id. at ¶¶ 62-64.

23 Id. at ¶ 59.

24 See generally, 47 C.F.R. §§ 52.13 and 52.15.

25 Another important numbering function performed by NeuStar is the administration of number portability. In the Commission’s Third Report and Order on Telephone Number Portability, the FCC crafted a recovery plan for costs incurred by the U.S. industry as a whole (i.e., shared costs) relating to number portability, including those costs incurred by the Third Party Administrator (currently NeuStar) to build, operate, and maintain the databases needed to provide number portability. Telephone Number Portability, Third Report and Order, 13 FCC Rcd 11701 (1998). Those costs, which are incurred by each of seven regional databases, are to be recovered, according to the FCC, from all carriers operating in such region “in proportion to each carrier’s intrastate, interstate, and international end-user telecommunications revenues attributable to that

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C. The FCC’s Numbering Functions and Funding Therefor

In its NANP First Report, the FCC discussed funding for numbering administration activities, including its own. The FCC decided that it should invoke its authority under the Omnibus Budget Reconciliation Act of 199326 to collect regulatory fees to recover the costs the Commission would incur in performing its duties for number administration, 27 such as the FCC’s costs for “the establishment, oversight of and participation in the NANC.”28 The FCC directly invoices and collects these regulatory fees. These funds are also included as part of the Commission’s appropriation from Congress and reported in its financial statements. The other participants in the policy-making and dispute resolution functions, i.e., the NANC, the INC, and participating carriers, bear their own costs associated with these particular responsibilities. For example, a carrier mus t pay the salary and travel expenses for its own representative to the INC.

D. Funding for the NANPA and NECA’s Creation of NBANC

Also, in its NANP First Report, the Commission addressed funding for those NANP administrative functions that would be performed by the neutral, third party administrator. The FCC estimated that the costs incurred for number administration excluding Central Office Codes would be in the order of $1.5 million annually, while Central Office Code administrative costs would not likely exceed $10 million per year.29 Those costs would be recovered in a manner that was “fair, competitively neutral and appl[ied] consistently to all users of number resources.”30 Again, the FCC deferred to the NANC to develop the details of the cost recovery plan.

The FCC later adopted specific rules based on the NANC’s recommendations. To recover the U.S. portion of the NANP’s costs of numbering administration, a fee would be assessed on every telecommunications carrier based upon its gross revenues from the sale of telecommunications services less revenue earned from the provision of services and facilities to

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region.” Id. at ¶ 105. See also, 47 C.F.R. § 52.32. NBANC has no involvement with funding for number portability since NeuStar bills carriers directly to recover its costs. Therefore, the funds used to reimburse NeuStar for its costs of administering number portability databases are not at issue herein.

26 Omnibus Budget Reconciliation Act of 1993, P.L. No. 103-66, 107 Stat. 312 (1993) (“93 Budget Act”).

27 NANP First Report, at ¶ 84.

28 Id.

29 Id. at ¶ 94.

30 Id.

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other carriers.31 This contribution formula, which appears in Section 52.17 of the FCC’s rules, was later changed to include only billed end-user telecommunications service revenues.

The FCC directed NECA to establish a separate non-profit subsidiary, NBANC, with an independent board, to act as the Billing and Collection Agent for NANPA funding. 32 NBANC’s duties are as follows:33

1) Calculate, assess, bill and collect payments for all numbering administration functions and distribute funds to the NANPA on a monthly basis;

2) Distribute to carriers the “Telecommunications Reporting Worksheet” used in the calculation of each carrier’s contribution;

3) Maintain the confidentiality of NBANC’s records and data in accordance with the FCC’s rules;

4) Develop procedures to monitor industry compliance with reporting requirements and propose specific procedures to address reporting failures and late payments by carriers;

5) File annual reports with the appropriate regulatory authorities of the NANP Member Countries as requested; and

6) Obtain an annual audit, from an independent auditor, evaluating the validity of calculated payments.

E. Number Pooling

In 1999, the FCC, alarmed at the pace of Area Code exhaustion, commenced a new proceeding to establish policies to use numbering resources more efficiently.34 A variety of factors, including the PSTN’s architecture,35 the explosion in cellular telephones, fax machines

31 Implementation of the Local Competition Provisions of the Telecommunications Act of 1996, Second

Report and Order and Memorandum Opinion and Order, 11 FCC Rcd 19392, at ¶¶342-43 (1996) (subsequent history omitted). See also, 47 C.F.R. §52.17.

32 Administration of the North American Numbering Plan and Toll Free Service Access Codes, Third Report and Order in CC Docket No. 92-237 and Third Report and Order in CC Docket No. 95-155, 12 FCC Rcd 23040 (1997)at ¶¶ 83, et seq.

33 See 47 C.F.R. § 52.16.

34 Numbering Resource Optimization, Notice of Proposed Rulemaking, 64 Fed. Reg. 32471 (1999) (“NRO Notice”).

35 As noted above, the PSTN was designed and engineered to assign an entire NXX Code (10,000 individual telephone numbers) to a single switch, regardless of how many actual telephone numbers were being used by customers. Thus, for example, a small rural telephone company in South Dakota that served only 200 customers still required an entire NXX code. Since no other carrier could share that Central Office Code, some 9800 telephone numbers were effectively

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and additional lines for dial-up Internet access, and the entry of new carriers into the local exchange market, caused rapid use of Central Office Codes, which, in turn, resulted in a tremendous growth in new Area Codes.36 The rapid use of Central Office Codes and, indirectly, Area Codes had created a potential premature exhaustion of the current 10-digit NANP. Exhaustion of the 10-digit NANP would require its replacement with an expanded NANP (e.g., 12 digits) that would cost carriers and their cus tomers billions of dollars in new expenses, as well as untold inconveniences.

Based on recommendations from the industry submitted through the NANC, the FCC decided to require certain carriers to pool their telephone numbers by thousands blocks as an Area Code conversation measure.37 Under thousand-block pooling, carriers would receive assignments of new telephone numbers in groups of 1000 at a time, rather than a full NXX Code of 10,000. For obvious reasons, number pooling is being implemented in the 100 largest Metropolitan Statistical Areas (“MSAs”) in the United States.38 NeuStar has been selected as the pooling administrator. In a number pool, the NXX Code is effectively assigned to the pooling administrator, which, in turn, assigns pooling carriers individual thousand blocks of telephone numbers. The carriers then make number assignments to their end user customers.

In examining number pooling cost recovery issues, the FCC decided to recover industry-wide or shared costs (i.e., those related to centralized databases) using the NANPA cost recovery formula, which is based upon each U.S. telecommunications carrier’s interstate, intrastate, and international telecommunications revenues from end user customers.39 The FCC did, however, require any state that had already begun to require number pooling (based on delegated authority from the FCC) to continue to use their state cost recovery plans until national pooling was implemented.40 NBANC bills and collects fees from carriers to recover these

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wasted. Similarly, a new market entrant that gained most of its telephone numbers through number portability as customers transferred their local service from the incumbent LEC would also require 10,000 new telephone numbers per exchange simply to be able to serve a single new customer who did not previously have telephone service in the area.

36 California alone has gone from 13 area codes in 1992 to 25 today. Prior to the institution of these new number conservation policies, California was projected to consume 41 area codes by the end of 2002. NRO Notice, at ¶4, citing, Briefing on Numbering Issues, California Public Utilities Commission, April 26, 1999.

37 Numbering Resource Optimization, First Report and Order and Further Notice of Proposed Rulemaking, 15 FCC Rcd 7474 (2000) (“NRO First Report”).

38 Numbering Resource Optimization, Order, CC Docket No. 99-200, DA 02-948 (rel. April 24, 2002).

39 NRO First Report, at ¶ 207.

40 Id. at ¶ 197.

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shared costs and disburses these fees to NeuStar to cover NeuStar’s expenses in administering number pooling.

F. Sources and Uses of Funds

The accounting profession traditionally scrutinizes the sources and uses of funds as part of its accounting analysis process. Based on the foregoing facts, it is clear that funding for activities associated with administration of the NANP comes from three sources: (1) regulatory fees imposed on U.S. telecommunications carriers by the FCC, pursuant to its authority derived from the ‘93 Budget Act; (2) carrier contributions levied by NBANC on all U.S. telecommunications carriers pursuant to Section 52.27 of the FCC’s rules;41 and (3) internal expenditures incurred by private sector carriers or other interested parties that interact with the NANP, its administrator, or regulatory agencies such as the FCC. None of these funds are commingled.

Each of these funding sources is used to support separate and distinct activities (or programs) associated with numbering. The FCC uses its regulatory fee revenues to recover the Commission’s expenses in connection with the establishment, oversight of, and participation in, the North American Numbering Council (“NANC”) and in performing two functions for the NANP, as previously discussed . . . establishing broad numbering policies and deciding numbering disputes that cannot be decided elsewhere. NBANC is not involved in billing and collection of these regulatory fees.

The internal expenditures made by carriers and other interested parties in connection with their interaction with the NANP are just that. A carrier, for example, would incur costs to apply for numbering resources, to provide NeuStar with required information about the carrier’s use of numbering resources, to participate in industry meetings addressing numbering issues, to attend a NANC meeting, or even to file comments with the FCC on a numbering matter. Obviously, there is no involvement by the FCC or NBANC with the funds used by private parties for NANP-related issues.

The carrier contributions collected by NBANC are used to fund the ministerial tasks (database management and processing of applications for numbering resources) that are performed by NeuStar, the privately owned administrator of the NANP. No funds collected by NBANC are used to fund any NANP-related activities performed by the FCC, carriers or other interested persons. It is this category of monies that is at issue here.

IV. LEGAL ANALYSIS

A. Neither NBANC, the NANPA, nor the Programs They Fund and Administer Meet the Standards for Inclusion as Part of the FCC’s Reporting Entity

41 47 C.F.R. § 52.27.

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1. The “Conclusive” Criterion

The federal government’s accounting standards set forth criteria for determining which organizations (programs or accounts) should be included as part of a federal agency’s “Reporting Entity.” These criteria appear in the “Statement of Federal Financial Accounting Concepts No. 2” (“SFFAC-2”), as published by the Executive Office of the President, June 5, 1995. SFFAC-2 requires that, in the event that the published criteria are met, funds attributable to “an organization, … program or account” should be reported as part of the federal government’s general purpose financial statements to prevent such statements from being “misleading or incomplete.”42

Such reporting is generally mandatory when the funds at issue appear in the federal budget as a component of “Federal Programs by Agency and Account.”43 This is the so-called “Conclusive” Criterion. However, despite its name, even the Conclusive Criterion is not absolute. For example, federal Indian Trust Funds are included in the federal budget’s list of Federal Programs by Agency and Account. However, in a published interpretation of its own standards, the FASAB has determined that Indian Trust Funds, which are assets held by the federal government in trust for registered Indian Tribes or, in some cases, individual American Indians, should not be included in federal financial reports. In so holding, the FASAB noted that such funds are not owned by the federal government, but are only held in trust for the intended beneficiaries.44

NBANC clearly does not meet the conclusive criterion. NBANC is a private corporation that does not receive any federal monies. Nor are NBANC or the funds it collects included in the federal budget’s list of Federal Programs by Agency and Account. Even if such funds were included in the federal budget, however, they would first have to be separated into U.S. and foreign sources and the former properly be treated in the same fashion as the Indian Trust Funds examined by FASAB, since NBANC’s funds are not owned by the federal government and cannot be used by the FCC to support the Commission’s limited responsibilities for NANP administration (i.e., establishing broad numbering policies and resolving disputes that cannot be addressed by the consensus process). Rather, NBANC’s funds come from telecommunications carriers, domestic and foreign, and are distributed by NBANC to NeuStar and other vendors solely to support functions that benefit those carriers.

2. The “Indicative” Criteria

SFFAC-2 also requires reporting for those organizations (programs or accounts) that meet certain “indicative” criteria,45 specifically, whether the organization (program or 42 SFFAC-2, at ¶ 43.

43 Id., at ¶ 42.

44 FASAB, INTERPRETATION NO. 1 OF FEDERAL FINANCIAL ACCOUNTING STANDARDS NO. 7 (ACCOUNTING FOR REVENUE AND OTHER FINANCING SOURCES).

45 Id. at ¶¶ 43-44.

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account): (a) “exercises any sovereign power of the government to carry out Federal functions; (b) is owned by the Federal government; (c) is subject to the direct or continuing administrative control of the reporting entity [here the FCC]”; (d) carries out Federal missions and objectives; (e) determines the outcome or disposition of matters affecting the recipients of services that the Federal government provides”; (f) has a fiduciary relationship with a reporting entity (here the FCC), as indicated by such factors as the ability of a reporting entity to commit the other entity financially or control the collection and disbursement of funds; and other manifestations of financial interdependency, such as a reporting entity’s responsibility for financing deficits (or) entitlement to surpluses; and (g) the entity or any of the criteria are likely to remain in existence for a time.46

According to FASAB, these criteria should be considered in the aggregate. No single indicative criterion should be seen as conclusive, nor should differing weights be assigned to the various criteria. Thus, although FASAB does acknowledge that it has presented the indicative criteria in descending order of importance in SFFAC-2, it, nonetheless, specifically states that a judgment as to whether an organization, program or account should be treated as a part of a financial reporting entity in the Federal Government must be based on a consideration of all of the indicative criteria.47

In applying the above-discussed facts to the FASAB criteria, the balance clearly tilts in favor of excluding the funds collected and disbursed by NBANC from the FCC’s financial statements. The first six of the seven enumerated criteria are not satisfied. The only criterion that NBANC clearly meets is the last one—NBANC hopes to remain in existence for some time in order to fund administration of the NANP for all of its Member Countries. However, the continued existence of NBANC, on its own, is a legally insufficient reason for the funds NBANC collects to be rolled into the FCC’s financial statements. The facts and law support an opposite result.

a. The NANPA and NBANC Do Not Exercise Any Sovereign Power of the Federal Government

Neither the NANPA nor its funding agency, NBANC, exercises any sovereign power of the U.S. government. This is true for several reasons. Congress did not give the FCC statutory authority to administer the NANP. Rather, Congress merely instructed the Commission to “create or designate one or more impartial entities to administer telecommunications numbering and to make such numbers available on a non-discriminatory basis.”48 It seems very clear that had the FCC decided to administer the NANP itself, such action would have been ultra vires.

46 Id. at ¶¶ 44-45.

47 Id., at ¶ 43.

48 47 U.S.C. § 251(e)(1).

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Similarly, Congress’ grant of “exclusive [regulatory] jurisdiction over those portions of the [NANP] that pertain to the United States”49 does not constitute a legislative determination that the day-to-day operations of the telephone numbering system constitute activity of the federal government. Rather, in this instance, as in a myriad of other instances, the FCC simply engages in regulatory oversight of private sector activities that have significant public interest impacts. Other Congressional grants of responsibility to the FCC stand in stark contrast. For example, Congress has given the FCC extremely broad and comprehensive authority over the use of radio frequencies. Section 301 of the Act prohibits any person from using or operating any apparatus that transmits energy, communications, or signals “except under and in accordance with this Act and with a license in that behalf granted under the provisions of this Act.”50 Licensing radio spectrum is clearly a function of the federal government; administering the NANP is not.

As discussed above, both the NANPA and NBANC are responsible not just to the FCC, but also to all other nations that are members of the NANP. The FCC has long recognized that it does not have exclusive control over the NANP51but rather shares it with regulators of other countries. The FCC has stated that: “The numbering practices used within the NANP differ from those used in most of the rest of the world in that the NANP integrates the dialing of eighteen nations.”52 Indeed, Section 251(e)(1) of the Act, which authorizes the FCC to exercise regulatory authority over telephone numbering matters, clearly limits such authority only to “those portions of the North American Numbering Plan that pertain to the United States.” The regulatory authority over those portions of the NANP that operate in other countries must also be considered by the NANPA and NBANC in its undertakings. There are examples where the NANPA and/or NBANC have taken direction from regulators from other nations.53 NBANC itself has two director positions that must be held by representatives of non-U.S. entities.

49 Id. The FCC’s third statutory power over the NANP is but another regulatory function—to ensure that

the “costs of establishing numbering administration arrangements and number portability [are] borne by all telecommunications carriers on a competitively neutral basis … .” Id. at § 251(e)(2).

50 Id. at § 301.

51 See, e.g., International Communications Policies Governing Designation of Recognized Private Operating Agencies, Grants of IRUs in International Facilities and Assignment of Data Network Identification Codes, Report and Order, 104 FCC 2d 208, at ¶14, n.40 (1986).

52 Administration of the North American Numbering Plan, Notice of Inquiry, 7 FCC Rcd 6837, at ¶5 (1992) (“NANP NOI”).

53 See, e.g., Letter from Peter Vivian, Executive Director – Telecommunications, Canadian Radio-television and Telecommunications Commission (“CRTC”), to Ron Conners, Director, NANPA, dated April 27, 1999 (directing the NANPA to ensure that “all 500 and 900 SACs currently assigned to Canada not be included in any portability pool established for the U.S.; and additional codes be reserved for Canada so that the sum of assigned and reserved codes for Canada be not less than 10% of each of the 500 and 900 SACs.”) (available at http://www.crtc.gc.ca/ENG/).

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Finally, NBANC does not exercise police powers, conduct negotiations involving the interests of the United States or borrow funds for government use, functions which Paragraph 44 of SFFAC-2 specifically cites as evidence that an entity is exe rcising sovereign power of the federal government.

b. NBANC and NeuStar Are Not Owned by the Federal Government

NBANC is a wholly owned subsidiary of NECA. NECA itself is an association of incumbent LECs. Neither the FCC nor the federal government holds any ownership interest in NBANC.54 It is noteworthy that no FCC or U.S. federal employee holds a position on NBANC’s board of directors. By stark contrast however, an employee of the CRTC, a foreign regulator, does serve on NBANC’s board at the present time.

Similarly, NeuStar is a privately held company. Neither the FCC nor the federal government holds any ownership interest in NeuStar. Likewise, no FCC or federal employee sits on NeuStar’s board of directors.

c. NBANC and the NANPA Are Not under the Direct Administrative Control of the FCC

As previously stated, NBANC receives some level of oversight from multiple countries, including the United States. However, its basic day-to-day management is reviewed only by its board of directors, none of whom are FCC or even other U.S. federal government employees. The federal government does not select any member of NBANC’s board of directors. The federal government has no authority to veto, overrule or modify NBANC board decisions. Day-to-day management of NBANC is handled by its corporate officers, who execute all contracts, manage and control NBANC’s property, and make all personnel decisions. NBANC does file an annual report with the FCC, which NBANC must provide to foreign regulatory bodies upon request.55 The FCC’s rules require that NBANC be audited on a yearly basis.56 However, this level of oversight does not constitute “direct or continuing administrative control” over NBANC as contemplated by SFFAC-2, paragraph 44.

Likewise, there is no day-to-day control over the NANPA by the FCC. NeuStar is a privately held corporation managed by its board of directors, who are elected by NeuStar’s shareowners. There are no FCC or federal employees on NeuStar’s board of directors. The federal government has no authority to veto, overrule or modify the decisions of the NeuStar board. Day-to-day management of NeuStar is handled by its corporate officers, who execute all contracts, manage and control NeuStar’s property, and make all personnel decisions.

54 See Network Services Division Approves Incorporation Documents and Board of Directors for North

American Numbering Plan Administrator’s Billing and Collections Agent, Public Notice, 13 FCC Rcd 3066 (1998).

55 47 C.F.R. § 52.16(e).

56 Id. at § 52.16(f).

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d. NBANC and the NANPA Do Not Carry out Federal Missions and Objectives

The administration of telephone numbers, which the NANPA performs and NBANC funds, is not a federal mission or even a governmental function. As discussed above, Section 251(e) of the Act does not permit the FCC to administer the NANP or take responsibility for its funding. Rather, Congress directed the Commission only to ensure that the NANP was administered by a neutral third party and gave the FCC responsibility for continuing oversight to ensure fair access to numbering resources for all carriers.

Also, it is critical to note that the NANP was created by the private sector some 55 years ago to provide common carrier services in a more efficient manner. Ever since, the NANP has been managed on a day-to-day basis in, by and for the private sector—albeit by different parties over time. Indeed, the day-to-day operations of the NANP would continue largely unchanged were Congress to repeal Section 251(e) tomorrow—or even abolish the FCC itself. A well-ordered numbering plan is essential to the multi-national North American telecommunications industry, as can be demonstrated by the significant resources devoted by individual carriers—large and small alike—and by other interested parties to numbering activities, such as through their participation in the INC. These private sector entities are performing functions that support the privately held North American telecommunications sector. In consequence, it is quite appropriate for not only the FCC and all other domestic regulatory agencies, but also for the CRTC and other international regulatory agencies to provide regulatory oversight for the NANPA and NBANC.

The FCC’s oversight of U.S. carriers’ (or their agents’) activities does not turn those activities into U.S. federal or international missions. The folly of a contrary conclusion can easily be seen. For example, as part of the introduction of long distance competition and the 1984 break-up of the Bell System, the FCC adopted rules that replaced a contractual inter-carrier long distance revenue sharing plan with a system of carrier access charges that were charged to long distance carriers by LECs.57 For the first full year of their implementation, interstate carrier access revenues amounted to more than $16.145 billion. 58 Yet, no one would have seriously contended that FCC regulation of the LECs’ access charge revenues turned the revenues themselves into federal government funds that would be reportable by the FCC today under the relevant accounting standards. If that had been true in 1985, the FCC would have been required to report some $16.1 billion of LEC revenues as if they had been earned by the FCC itself. Such reporting would turn the very goal of SFFAC-2—to prevent misleading or incomplete financial statements from federal agencies—on its ear. The inclusion of private-sector activities and their associated costs in a federal agency’s financial statements just because the agency has oversight responsibility for those activities would only serve to confuse and mislead Congress and the American public.

57 MTS and WATS Market Structure, Third Report and Order, 93 F.C.C.2d 241 (1983) (subsequent

history omitted).

58 FCC, STATISTICS OF COMMUNICATIONS COMMON CARRIERS-1985, at Table 14 (1987).

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e. NBANC and the NANPA Do Not Determine the Outcome or Distribution of Federal Services

As was clearly demonstrated above, the administration of telephone numbers and other NANP resources is not a federal service. The FCC has, on many occasions, indicated that telephone numbers are a public resource, but only in the sense that, as with radio waves, no one can actually own them. In this sense, telephone numbers are very different from natural resources, such as a national forest or wildlife refuges located on federally owned land. Likewise, telephone numbers are much different than student college loans that might be administered by a private entity such as a bank, but that are derived from federal appropriations.

Moreover, even if the administration of numbering resources were to be considered “a federal service or resource,” NBANC has no ability to determine who receives such service or resource. NBANC merely calculates the funding level necessary to support the NANPA’s activities and bills entities to recover those costs. In fact, the NANPA does not determine how telephone numbers and other NANP resources are assigned. The NANPA is merely a ministerial entity that assigns resources based on regulatory agency rules when extant and, most often, industry guidelines.59 The telecommunications industry itself, through the standard setting process, establishes the basic ground rules for the assignment of NANP resources, a result that is fully consistent with the concept that number administration is a private sector function that is administered on a competitively neutral basis.

f. NBANC and NeuStar Have No Fiduciary Duty to the FCC

NBANC and NeuStar do not have a fiduciary duty to the FCC. As with any entity that is subject to the FCC’s jurisdiction pursuant to the Act, NBANC and NeuStar have an obligation to follow the FCC’s rules. However, an obligation to follow applicable rules does not create a fiduciary duty. For example, the managers of large common carriers such as Verizon or AT&T have an obligation to comply with applicable FCC rules. However, those managers’ only fiduciary duty is to their corporate shareowners. Similarly, the FCC is not responsible for any financial shortfalls that NBANC or NeuStar might incur—nor, for that matter, is it entitled to any of their surpluses.60

g. NBANC and NeuStar Hope to Continue in Existence

NBANC’s existence is more than transitory. Absent a major change in policy by the NANP member nations, NBANC expects to continue its existence indefinitely. Hence, NBANC satisfies one of the SFFAC-2’s criteria for federal reporting.61 However, that criterion

59 See, e.g., INDUSTRY NUMBERING COMMITTEE, 555 ASSIGNMENT GUIDELINES, INC 94-0429-002 (reissued

August 6, 2001).

60 Administration of the North American Numbering Plan and North American Numbering Plan Cost Recovery Contribution Factor and Fund Size, Order, 14 FCC Rcd 842 (1998).

61 SFFAC-2, at ¶ 45.

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is the least important of the seven in determining whether an entity’s activity should be reported by an agency, and all enumerated criteria must be considered together.62 One must also presume that NeuStar would like to continue its involvement with the administration of the NANP, pending potential reauthorization by the Commission. 63

h. The FCC’s Prior Decision Cannot Serve As Binding Precedent

The FCC’s decision to include NBANC funds in the FCC budget in 2002 cannot serve as binding precedent for the decision to include NBANC funds once again in 2003. As is clear from the foregoing, the FCC’s prior decision was incorrect, and therefore cannot serve as the rationale for similar action in 2003.

i. The FCC Must Follow the Well-Established Principles of the Administrative Procedure Act

The FCC’s decision with respect to the treatment of NBANC funds in 2003 clearly involves substantive rights. As such, the notice and comment procedures of the Administrative Procedure Act must be applied to the decision-making process of the FCC in this case. The failure to apply such procedures with respect to the 2003 decision, which procedures were not applied to the 2002 decision, will render the FCC’s decision arbitrary and capricious, and subject to reversal on appeal on this basis alone.

On balance and in conclusion, neither NBANC nor the NANPA meet the indicative criteria of SFFAC-2.64 Therefore, it would not be appropriate for the FCC to include 62 Id. at ¶ 43.

63 The Wireline Competition Bureau Seeks Comments on the North American Numbering Plan Administrator Technical Requirements, Public Notice, DA 02-1412 (rel. June 13, 2002) (the FCC is seeking comments on the technical specifications for the next administrator of the NANP. Those specifications were developed by the NANC and would govern the next five-year term for the administration of the NANP).

64 The above analysis also leads to the same conclusion with respect to number pooling. Number pooling administration satisfy only one of the indicative criteria -- administration of number pooling will continue to be required for the foreseeable future. Number pooling, while directed by the FCC, was created by private industry to enable it to operate more efficiently. Administration of number pooling simply is not an exercise of the federal government's sovereign power. This ministerial task is not performed by an organization that is owned by the federal government. As discussed above, neither NeuStar nor NBANC are under the direct administrative control of the federal government. Since numbering resources are used primarily to operate the PSTN (that is to complete telephone calls), the number pooling functions performed by NeuStar and funded by NBANC are private industry functions, rather than federal missions or operations.

Telephone numbering resources do not belong to the federal government. Number pooling technology was created by private industry at its sole expense and simply cannot be considered a public resource. Therefore, because there are no federal assets or services involved, NBANC and the NANPA do not determine the outcome or distribution of federal services. Also, as discussed in some detail above, the funds that reimburse NeuStar’s costs for number pooling administration

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on its financial statements the funds collected by NBANC from carriers and then disbursed by NBANC to NeuStar to defray the costs associated with administering the NANP.

Finally and as previously noted, the NANP is an integrated multi-national numbering plan involving not only the U.S., but also 18 other sovereign nations. It is totally inappropriate, if not illegal, for the FCC to consider funds that are collected from all of the NANP nations for the purposes of ensuring the proper administration of the NANP to be considered U.S. federal funds. The mere perception that one NANP nation could control all aspects, or in this case, assets related to the integrated numbering plan could lead to political difficulties with respect to the administration of the plan should federal regulators or agencies from other NANP participating nations view this as a threat to their sovereign rights or as an attempt to gain control over other aspects or assets relating to the NANP that they might properly see as being within their purview.

CONCLUSION

For all the reasons set forth above, the Commission should reverse its prior decision and conclude that NBANC does not meet the applicable accounting criteria for inclusion as a part of the FCC’s Reporting Entity in 2003. The funds NBANC collects from private carriers and disburses to fund administration of the NANP for the benefit of those same carriers should no longer be included in the FCC’s financial statements in 2003.

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are derived solely from the private sector. They have never belonged to the federal government. Therefore, neither NeuStar nor NBANC owe any fiduciary duty to the federal government with respect to number pooling.

EXHIBIT A

DCLIB-0297311.04-JLHARRIS June 23, 2003 3:22 PM

NUMBERING RESOURCES MANAGED BY THE NANPA

As discussed in the body of this memorandum, the NANPA manages the following numbering resources: Area Codes; ANI II Digits; Carrier Identification Codes (“CICs”); N11 Codes; Vertical Service Codes (“VSCs”); Central Office Codes, including 456-NXX Codes; 500-NXX Codes; 555-Line Numbers; 800-855 Line Numbers; 900-NXX Codes and Non-Dialable Toll Points (“NDTPs”), see supra, at 9. Each of these resources is briefly described below.

Area Codes represent specific geographic portions of the territory served by the NANP and are represented by a three-digit number. For example, 302 is the Area Code for Delaware, 213 is the Area Code for Downtown Los Angeles, and 416 is the Area Code for downtown Toronto, Canada. Area Codes are assigned pursuant to INC guidelines. In the United States, area code relief is regulated by state public utility commissions (PUCs”).1

Central Office Codes (often referred to as “NXX Codes”) are the second three digits in a ten-digit telephone number. For example, in the telephone number 202-234-7890, “234” is the Central Office Code. Central Office Codes are assigned in the U.S. accordance with INC guidelines. In Canada, they are assigned pursuant to Canadian guidelines approved by the regulator2.

ANI (Automatic Number Identification) II Digits are two-digit pairs sent with the originating telephone number. These digits identify the type of originating station, such as a payphone, for billing purposes. There are no formal guidelines for the assignment or designation of ANI II Digits at this time.

CICs are four-digit codes used by the PSTN for the routing and billing of calls. CICs are assigned pursuant to INC guidelines.

N11 Codes permit three-digit dialing for special services such as 911 Emergency Service and 411 Local Directory Assistance Service. In recent years, the FCC has determined the assignment of previously unused N11 Codes for the United States. In Canada, this task has been carried out by the CRTC.

VSCs are customer-dialed codes that provide end user access to features and services offered by local exchange carriers, interexchange carriers, commercial mobile radio

1 47 C.F.R. §52.19.

2 In Canada, the CRTC Interconnection Steering Committee (CISC) Canadian Steering Committee on Numbering tailor INC administrative guidelines for the Canadian environment. These guidelines are then forwarded to the CRTC for its approval. Once approved, these guidelines are considered Commission documents which are used by the Canadian Numbering Administrator to assign or coordinate with NANPA the assignment of NANP resources.

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service providers (“CMRS”), and others. Services invoked by VSCs include call forwarding, automatic callback, customer originated trace, and many others. The format of a VSC is *XX or *2XX (touchtone) and 11XX or 112XX (rotary dial). For example, call forwarding is activated by dialing *72 or 1172. VSCs are assigned pursuant to INC guidelines.

456-NXX Codes are used for certain incoming international calls to and between NANP Member Countries. 456-NXX Codes are assigned pursuant to INC guidelines.

500-NXX Codes are used by carriers to provide “follow-me” personal communications services. For example, a subscriber of this service might use a single telephone number (500-NXX-XXXX) for callers to reach her or his work, home or cellular phone, based on instructions entered into the network. 500-NXX Codes are also assigned according to INC guidelines.

555-Line Numbers are used to provide miscellaneous information services. They can be assigned on either a national or local basis, pursuant to INC guidelines. 800-555-Line Numbers are used to provide PSTN services to deaf, hard of hearing, or speech- impaired persons, in accordance with INC guidelines

900-NXX Codes are used to provide end user access to premium services. Callers are billed for these premium services. 900-NXX Codes are assigned based upon INC guidelines.

NDTPs are entire Central Office Codes assigned to individual stations or telephone lines within the 886 and 889 NPAs, which typically are located in extremely remote areas where standard telephone service is not available. These arrangements are generally regarded as wasteful of numbering resources (the assignment of an entire CO code to support one or a few stations), but are necessary to support call routing to these remote locations.

There is also one other significant numbering resource—toll free telephone numbers (i.e., 800-NXX, 800-NXX, 877-NXX, and 866-NXX) that are not administered by the NANPA. Rather, those numbers are administered by Database Service Management, Inc. (DSMI). Those numbers are assigned based on the guidelines of another ATIS committee, the Ordering and Billing Forum (“OBF”) and rules of the FCC.3 The costs for administering toll free numbers are recovered in tariff rates for those services.

3 See 47 C.F.R. §§52.101 through 52.111.

EXHIBIT B

DCLIB-0297311.04-JLHARRIS June 23, 2003 3:22 PM

THE INDIVIDUAL PROGRAMS FUNDED BY NBANC DO NOT MEET THE INDICATIVE CRITERIA

While the FASAB’s indicative criteria do not fit perfectly when applied to programs, as compared to organizations, federal accounting experts do, from time to time, consider the criteria in determining whether or not to include a specific program, rather than an entire third-party entity, in federal financial statements.

Administration of the NANP involves a number of different programs. Specifically, and as discussed in the body of this memorandum, the FCC determined that NANP administration consists of four separate functions: “policy-making; dispute-resolution; maintenance of number databases; and processing applications for numbers.”1 Needless to say, each of these functions, the performance of which is separable, contains dozens of individual tasks.2 A reasonable approach would be to treat each of these four functions as a specific program for the purpose of analyzing the federal accounting rules. Alternatively, the first two functions—policy-making and dispute-resolution—could be grouped together as extraordinary functions, while the latter two—database management and applications processing—could be grouped together as ordinary or day-to-day functions.

A. Policy Making and Dispute Resolution

Execution of the first two functions is quite rare, and even more rarely requires the involvement of the FCC. The FCC has established important numbering policies (e.g., number portability, toll free telephone numbers, CICs, and Numbering Resource Optimization) in the rulemaking process. Yet, when viewed in the context of the many other regulatory functions performed and rules promulgated by the FCC during the same period of time (1992-2002), NANP policy-making is a small part of the FCC’s operations. Likewise, if one compares the numbering policies established by the FCC (47 C.F.R., Part 52) to those established by the industry through the INC for the same period of time (all of the INC guidelines can be found on-line at www.atis.org), even the policy-making function is still largely performed in the private sector. The Commission’s 1995 conclusion that, “[i]n many respects, INC today directs the efforts of [the] NANP administrator,”3 still rings true today.

The same conclusion should be drawn about the dispute resolution function of NANP administration. From time to time, the FCC has certainly resolved disputes about numbering resources that could not or should not have been resolved elsewhere. For example,

1 NANP NPRM , at ¶7.

2 See, e.g., NANPA, JOB AID – CENTRAL OFFICE (CO) CODE ASSIGNMENT REQUEST (March 26, 2001) (available on-line at www.nanpa.com).

3 NANP First Report, at ¶ 31.

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the FCC determined that most commercial subscribers to toll free vanity numbers4 in the 800 Service Access Code (“SAC”) would be given the right of first refusal to the corresponding toll free telephone number in the 888 SAC, but no further rights to specific vanity toll free numbers in future toll free SACs would be granted to any subscribers.5 Resolution of this type of dispute by the FCC for U.S. toll free subscribers is the proper exercise of the FCC’s authority to resolve disputes over NANP resources.

Yet again, however, the vast majority of numbering disputes have been and will to continue to be resolved by the industry through consensus at either the INC or the NANC. Such was the clear intention of the FCC when it first established rules for the NANC.6 In its bi-monthly meetings and numerous special meetings and conference calls, the INC has obtained consensus solutions for many disputed issues.7 Similarly, the NANC, often through its Working Groups and special ad hoc Issue Management Groups, has also solved a considerable number of disputes over numbering resources or policies without the need for formal FCC action.

Moreover, and most importantly, the funds collected and disbursed by NBANC are not involved in funding the FCC’s participation in either the policy making or dispute resolution functions. In the NANP First Report, the FCC announced its decision to recover its new costs for participation in the administration of the NANP—largely through the establishment and operation of the NANC—by increasing the amount of regulatory fees collected by the Commission pursuant to the 93 Budget Act.8 Thus, the expenses incurred in connection with the FCC’s limited policy making and dispute resolution functions, and the regulatory fees used to defray those expenses are already contained in the FCC’s financial statements. All other expenses incurred by participants in the FCC’s policy-making and dispute-resolution functions are borne by the other parties themselves without any involvement by NBANC.9

4 A “vanity number” is “a telephone number for which the letters associated with the number's digits on a

telephone handset spell a name or word of value to the number holder.” Toll Free Service Access Codes, Report and Order, 11 FCC Rcd 2496, at ¶13 (1996).

5 Toll Free Service Access Codes, Fourth Report and Order and Memorandum Opinion and Order, 13 FCC Rcd 9058 (1998).

6 NANP First Report, at ¶¶ 39-53.

7 The INC’s Internet web site, which is a part of ATIS’ web site, indicates that, since approximately 1992, the INC has resolved 279 numbering issues.

8 NANP First Report, at ¶ 84.

9 For purposes of complete accuracy, however, it must be noted that the NANPA spends a very small portion of its funds participating in the INC or the NANC’s meetings. While members of the NANPA’s staff often attend NANC meetings or may even meet with FCC officials on occasion, the associated costs to the NANPA are not material from an accounting perspective.

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B. Database Management and Applications Processing

The other two NANP administrative functions identified by the FCC and funded by NBANC—database management and applications processing—are vastly different from the functions that are performed, at least in part, by the FCC. Neither of these programs satisfies all or even most of the indicative criteria. Database management and applications processing are ministerial in nature. NeuStar’s employees follow rules and guidelines established by others—regulatory agencies such as the FCC and the CRTC, and industry bodies such as the INC and the NANC. By confining itself to ministerial functions and providing expert advise to policy makers, the NANPA can maintain its neutrality as required by law. Accordingly, database management and applications processing do not meet the first indicative criterion – they are not an exercise of the sovereign power of the federal government.

These ministerial functions are not governmental in nature. Rather, they are private sector operations that have existed in one form or another since the advent of the NANP and would continue to exist even in the absence of the FCC’s authority over the NANP. Once the Bell System implemented the NANP, the Bell System was required to keep records for the NANP. For example, the Bell System was required to keep records of which exchanges and telephone numbers were located within the 216 and 614 Area Codes that served eastern Ohio. Someone had to maintain the definitive record indicting which Area Code served Mount Vernon, Ohio. Similarly, records of CIC assignments to long distance carriers were kept so that the same CIC would not be assigned to more than one carrier. At one time, these records were kept on paper; today they are maintained in databases. However, the format of such records is immaterial for accounting purposes.

Likewise, the Bell System and its successor numbering administrators have always processed applications for numbering resources. AT&T handled the 1973 split of Virginia’s 703 Area Code into the 703 and 804 NPAs. Bellcore handled the 1996 split of the 703 Area Code into the 703 and 540 NPAs. NeuStar handled the 2000 overlay of the 571 Area Code onto the 703 Area Code. While the identity of the administrator varied over time, the work functions associated with the provision of area code relief remain similar.

The BOCs, while they administered Central Office Codes, processed requests by Independent Telephone Companies for additional NXX Codes. Today, the NANPA handles those requests just as it does a request from a new competitive LEC for its initial or growth Central Office Codes.

Therefore, database management and applications processing also fail to meet other indicative criteria. They are not performed by an organization that is owned by the federal government. As discussed above, neither NeuStar nor NBANC are under the direct administrative control of the federal government. Since numbering resources are used primarily to operate the PSTN (that is to complete telephone calls), the database management and applications processing functions performed by NeuStar and funded by NBANC are private industry programs, rather than federal missions or operations.

Telephone numbering resources do not belong to the federal government. They were created by private industry at it sole expense and can be considered public resources only to

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the extent that no one can possess them. Therefore, because there are no federal assets or services involved, these programs do not determine the outcome or distribution of federal services.

Also, as discussed in some detail above, the funds that reimburse NeuStar’s costs for running these programs are derived solely from the private sector. They have never belonged to the federal government. Therefore, neither NeuStar nor NBANC owe any fiduciary duty to the federal government with respect to database management and applications processing.

So long as the PSTN continues to use the NANP, these programs must and will continue. Carriers must perform or arrange to have performed database management and applications processing indefinitely. This would be true even if Congress were to repeal the FCC’s statutory authority over the NANP or eliminate the FCC. This expected long-term existence for database management and applications processing satisfies only the seventh and least important indicative criteria. However, as discussed above, satisfaction of a single criterion is insufficient under the FASAB’s policies to require inclusion of database management and applications processing in the FCC’s financial statements.

CERTIFICATE OF SERVICE

I hereby certify that a copy of NECA’s Comments were served on this 23rd day of June 2003 by electronic delivery and by first-class mail to the persons listed below.

By: /s/ Elizabeth R. Newson

Elizabeth R. Newson The following parties were served: Marlene H. Dortch Secretary Federal Communications Commission 445 12th Street, S.W. Washington, D.C. 20554 (filed through ECFS) Qualex International Room CY-B402 445 12th Street, SW Washington, D.C. 20554