§ 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) [Reserved]

   [ 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;  84 FR 4730 , Feb. 19, 2019]

   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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