Federal Universal Service Fund

Senate Communications Subcommittee Chmn. Burns (R-Mont.) said he wasn’t sure when he will introduce the Universal Service Fund (USF) draft bill that has been floating around for some time, but said it could be before this session ends (CD Oct 28 p1). “We're thinking pretty quick, we think,” he said. Burns also said that once recommendations were received from the Federal-State Joint Board that’s studying USF distribution methods, further legislation might be warranted. “We don’t want to go down the distribution route until we see what the Joint Board has done,” he said. “I don’t want to preempt them in any way.”

States and municipalities are expressing concern that legislation designed to prevent taxes on access to Internet service eventually could restrict local govt. regulation of telephony and cable service. NARUC, the National Governors Assn. (NGA), National Assn. of Telecom Officers & Advisors (NATOA) and the TeleCommUninty Alliance (TCUA) are among the local interests expressing concern about S-150, the proposed Internet Tax Non-Discrimination Act.

Reps. Terry (R-Neb.) and Stupak (D-Mich.) chastised the FCC for failing to significantly reform a provision of the universal service fund (USF) Thurs. (CD Oct 17 p4). In response to a 10th U.S. Appeals Court, Denver, ruling, the FCC directed state regulators to compare rural rates with urban rates and sought comments on rate reviews. The “nonrural” fund -- $234 million for Bells and other large ILECs to serve rural customers -- has come under criticism because only states receive any funding, much of which goes to BellSouth. Miss. gets the lion’s share with $120 million. Terry and Stupak are the principal sponsors of legislation (HR-1582) designed to reform the distribution formula to be based on wire centers rather than statewide averages, which supporters say would spread the fund more evenly. “When given an opportunity to fix one of the most unfair and poorly targeted programs in the federal government, the FCC took a pass,” Terry said. “By turning a deaf ear to the public outcry, they've put the ball in our court and we're going to act.” Sen. Smith (R-Ore.) has sponsored a similar bill (S- 1380).

The FCC proposed an $806,861 fine against Globcom, a Northbrook, Ill., long distance reseller, for not making Universal Service Fund (USF) and Telecom Relay Service (TRS) contributions. The Commission said Tues. that Globcom owed $700,000 to the USF as of Aug. and hadn’t satisfied its obligation to contribute to the TRS Fund, which helps people with hearing or speech disabilities use the telephone system. The agency said Globcom apparently underreported its revenue to the Commission “and at times failed to report revenue information at all.” That information is used by the FCC to calculate carriers’ USF and TRS payments. The FCC Enforcement Bureau said this is the largest fine ever proposed for such violations and FCC Chmn. Powell said it’s “an important step in preserving the integrity of the Universal Service Fund by sending a signal to carriers who shirk their duty to pay their fair share.” The agency said it increased the normal level of fines because “it appears that Globcom deliberately chose not to pay its universal service contributions each month for revenues derived from January 1, 2001, to the present.” The Commission said that despite “numerous monthly communications” from the Universal Service Administrative Co. (USAC), Globcom had “done nothing to address this matter.” It also ordered Globcom to submit a report in 30 days outlining its plans for coming into compliance with the rules. Globcom can seek a reduction or cancellation of the fine in that 30-day period but the agency warned it wouldn’t take inability to pay as an excuse without federal tax returns, financial statements or other objective documentation.

The Progress & Freedom Foundation (PFF) released a study on the universal service fund (USF) that said the program was “ill-defined” and threatened by new technology. The study, written by Raymond Gifford and Adam Peters, outlined several possible solutions, but said “both regulators and legislators would be well-advised to take a step back and reconsider what the universal service fund is really supposed to pay for before determining which mechanisms should be employed.” One proposed solution is “phone stamps,” a voucher program to offset costs in rural areas for low income people. At a PFF panel discussion on Fri., several speakers discounted that idea. Nanette Thompson, Alaska PUC Comr., said such a “means-based” approach isn’t realistic because the expense for providers is in building the network. “It’s not a question of affordability of service, but of the cost to provide the service,” she said. Other ideas included an offset similar to the earned income tax credit and using a “reverse auction” as a distribution method. The paper also suggested abandoning charges on interstate services with an across-the-board surcharge on all communications service revenue. Thompson, who’s also the state chmn. on the joint federal-state board on USF, said the state side of the board favors that approach. Matt Brill, aide to FCC Comr. Abernathy, the federal chmn. of the joint board, said such an approach would likely require legislation. John Rose, OPASTCO pres., said reform of USF should focus on 4 issues: (1) The public interest standard. (2) An increase in accountability. (3) Distribution based on actually costs. (4) A broader base of support to draw from. John Stanton, Western Wireless chmn., said wireless companies should be included in the distribution of USF funds since that technology is well suited for rural areas and since it’s becoming the only line for many consumers. He said while wireless company contributions make up 30% of the USF, wireless companies receive only 2% of the distributions.

Careful not to step on the toes of the House Commerce Committee, House Small Business Rural Enterprise Subcommittee Chmn. Graves (R-Mo.) said he would be working with Commerce Committee Chmn. Tauzin (R-La.) as they examined the problems and potential solutions for the Universal Service Fund. After a subcommittee hearing Thurs. that focused mainly on eligible telecom carrier (ETC) designation, Graves said he had many concerns about the fund -- particularly how it was applied to rural small businesses -- and said he would work with Tauzin and the Commerce Committee as each panel examined USF issues. The House Telecom Subcommittee held its own hearing on USF issues Wed. (CD Sept 25 p1).

In the first of 3 days of House activity on the universal service fund, the House Telecom Subcommittee took a broad look at the program as most members and witnesses said something had to be done to fix the program before it becomes insolvent. But agreement ended at that point, as an array of witnesses offered competing suggestions for a fix.

“Regulators must resist the urge to regulate [voice- over-Internet-protocol -- VoIP] unless and until there are compelling reasons to do so,” Richard Whitt, WorldCom dir.- federal law & public policy, said at an FCBA lunch Wed. in Washington. He said telecom service regulatory policies, in particular the current intercarrier compensation regime, were “bloated, untenable and inequitable and harm the public interest in numerous ways… The worst thing to do is to extend this bloated mess to nascent, innovative IP-based technologies such as VoIP.”

The most important part of the FCC decision issued Mon. on what services are eligible for universal service support (CD July 15 p1) is what the Commission chose not to do, observers said, as did the Commissioners themselves in separate statements issued as part of the order. The FCC voted to defer action on whether “equal access” should be on the list of eligible services. Placing it on the list would have required competitors, such as those that provide wireless service in rural areas, to offer equal access service before they could be eligible for universal service, a move they opposed but rural ILECs supported.

Low-volume, low-income consumers who depend on “lifeline” phone services will have to pay a “disproportionate” amount into the Universal Service Fund (USF) if the FCC adopts a connection-based contribution methodology, a new report by the New Millennium Research Council (NMRC) said. “A per-line charge would be harmful to the very population the fund seeks to help,” as low-volume long distance service callers, who represent 40% of consumers, would be “required to pay the bulk” of the universal service funding, said Jeffrey Kramer, senior legislative representative for AARP.