FCC EYES REFORMS IN UNIVERSAL SERVICE FUND AMID MARKET CHANGES

Proposals in item include: (1) Requirement that carriers contribute to USF based on percentage of collected revenue, rather than billed revenue. (2) Whether to assess universal service contributions based on current or projected revenue. (3) Whether to use per-unit assessment, such as fixed per-line assessment, which would entail carriers contributing on flat-fee basis based on current line counts or number of accounts. (4) Limits on how carriers recover contribution costs from customers, such as uniform line description and requiring line item amounts to not be larger than contribution assessment. Among industry trends that FCC said proposal attempts to address is increased bundling of services such as local and long distance that can affect ability of carriers to distinguish and allocate revenue from different offerings. As for new entrants into long distance market, Commission said that because contributions were based on historical, rather than current, interstate revenue, “this may create distortions” in market. BellSouth Vp Robert Blau said that “what you're seeing here is that the current collection mechanism is developing a sufficiently large number of cracks and the Commission is sort of trying to get out ahead of a problem” by suggesting ways to fix it “and see that the program is maintained.”

Under existing universal service rules, carrier contributions are assessed as percentage of interstate and international end- user telecom revenue. NPRM said “we believe that we may need to revisit the concepts underlying the existing contribution system, in light of current market trends, to ensure that providers of interstate telecommunications services continue to ‘contribute on an equitable and nondiscriminatory basis'” to mechanisms established by FCC for universal service. Proposal asks commenters to take “fresh look” at how universal service contribution system should work, particularly in light of market changes. NPRM seeks comment on whether FCC should assess universal service contributions based on current or projected revenue. Under recent policy change (CD March 15 p5), FCC shortened time between carrier’s accrual of revenue and assessment of USF contribution to 6 months. Some long distance carriers have argued that mechanisms based on historical revenue give edge to new entrants, who may have high interstate revenue in one year although in previous year they might have had no revenue recorded because they weren’t in that market. At same time, IXCs with declining market share would be assessed for higher revenue in previous year, even though revenue might have shrunk for current year, some carriers say.

Several sources said proposals wouldn’t necessarily spell big changes for customers. One industry official said nuts-and-bolts nature of proposals was more akin to “plumbing” of how universal service fund was carried out. One exception might be if fixed per-line assessment were used for cost recovery, another industry source said. Systems based on percentage of revenue could take into account heavy call patterns of business customers, while lower volume residential customers would see more marked changes from fixed line charges that wouldn’t make distinctions based on volume, source said. System based on latter scenario could elicit some concerns from state commissions or consumer groups, source said.

Among drivers for changes to simplify universal service contribution methodology are extent to which carriers elect to recover bulk of their universal service contributions through line items on bills, NPRM said. While FCC sets uniform contribution factor for universal service, carriers still can choose to increase that to account for variables such as uncollectible revenue, according to proposal. “We believe that this process may require carriers to engage in complex calculations in order to fully recover their contribution costs through a line item on customer bills,” item said. Potential advantage of proposal that would require carriers to contribute to USF based on percentage of collected, rather than gross-billed, revenue would be that it would eliminate need for such calculations, NPRM said. Under that proposal, FCC would calculate percentage contribution factor based on either historical or projected end-user revenue.

Other FCC concerns include extent to which line item fees for universal service vary among carriers, “even though the contribution factor set by the Commission is uniform across carriers.” As example, proposal said that in 4th quarter of 2000, agency set contribution factor of 5.7%, but major long distance carriers set line-item fees on residential and business customers ranging from 5.9% to 8.6%. It said that in 2nd quarter of this year, FCC contribution factor was 6.8%, but WorldCom residential line item was 12%. “This discrepancy between the contribution factor and the amount carriers charge consumers is inexplicable to the casual observer,” NPRM stated. Proposal said some carriers apparently were recovering universal service contributions through line item on only certain types of customers. Those carriers “may be recovering universal service contributions from presubscribed customers” through line items that exceed FCC’s contribution factor. Carriers then may recover through service rates “an unidentified amount of such costs from other customers,” such as those on prepaid calling plans, FCC said. “The end result may be that certain customer classes are bearing a disproportionate share of the carrier’s cost of universal service contributions,” which in certain cases could run counter to Commission directive that contributors not shift more than equitable share of contributions to any group of customers, NPRM said.

Comr. Ness issued separate statement supporting revisiting manner in which carriers contribute to universal service mechanisms. She also urged FCC to incorporate input of Federal- State Joint Board on Universal Service. “A continuing dialog with our state colleagues is vital as the Commission works through issues affecting universal service,” Ness wrote. Proposal comes as FCC is scheduled to take up at agenda meeting Thurs. reforms in universal service system for rural carriers, with vote set on whether to accept plan proposed by Rural Task Force (CD May 4 p5).