ITAA SAYS CONNECTION-BASED USF SYSTEM COULD BENEFIT ISPs

ITTA was one of dozens of parties that filed in proceeding, including SBC and BellSouth, which proposed different type of connection-based system, wireless carriers that expressed opposition, long distance companies that expressed support and Cal. PUC, which said plan would be “unfair and inequitable to low usage interstate households.”

Association told agency that connection-based system could eliminate 3 “deficiencies in the current system that have an adverse impact on… ISPs.” ITAA said plan would: (1) Establish “sufficient funding base” without imposing USF contribution obligations on ISPs as some had proposed. (2) Promote “broadband migration” by eliminating “broadband penalty” that occurred when customer migrated from dial-up Internet service to DSL-based broadband access. Dial-up generates intrastate revenues, which aren’t assessed for USF contributions, but DSL is interstate service that does generate USF payments, ITTA said. So when customers move to DSL they get hit with new USF fees, it said. (3) Reduce “competitive distortion in the information services market.” ITAA said carriers now could undercount revenue they received from providing telecom service to their affiliated ISPs and thus make smaller USF payments for their own ISP operations than for service provided to outside ISPs. Since USF contributions are passed on to customers, that means carrier could “provide information services to its subscribers at a lower price than can an equally efficient nonaffiliated ISP.”

Connection-based plan was proposed by Coalition for Sustainable Universal Service (CSUS), composed of Ad Hoc Telecom Users Group, AT&T, e-commerce & Telecom Users Group (eTUG), Level 3 Communications and WorldCom. Group told FCC that changing current revenue-based system was imperative because traditional interstate revenue on which it was based was decreasing as result of factors such as substitution of wireless for wireline long distance, growth of long distance substitutes such as e-mail and instant messaging, bundling of services that made it hard to separate out interstate revenue. Coalition also said interstate carriers were troubled by “reporting lag” because current system assessed contributions on past revenue. Since many companies have seen their revenue drop, they constantly are paying more than they need to, coalition said. Group said connection-based system worked because connections, unlike revenues, would continue to grow “and provide a stable, fair basis for assessments.”

Coalition also argued that consumers, including low- income households, would be better off under connection-based plan because their USF fees would drop, but opponents of plan strongly disputed that, saying flat fees were unfair because they would be assessed on all consumers equally. Said Cal. PUC: “A connection-based approach would shift more of the financial burden to low-usage residential end users, who typically receive the least benefit from the ability to make interstate calls or be called by other customers and who may be the least able to pay.” Proposal would require carriers to pay $1 per month for each residential, single-line business and mobile wireless connection to the public network, except for pagers, which would be assessed 25 cents per connection. Remaining USF funding would come through capacity-based assessments on multiline business connections. Carriers then would pass those fees on to end users.

BellSouth and SBC agreed current system should be revised in light of declining revenue base but said system proposed by coalition wasn’t fair because it would exclude long distance companies from any obligation to contribute. Companies said they had devised connection-based system that did conform to Telecom Act. Their plan bases contributions on telecom “activities” rather than connections. This “activity” occurs when service provider sells any telecom services or any service that incorporates telecom component. Activity then establishes “qualifying service connection” (QSC) on which payments would be based. Under SBC-BellSouth plan, all providers would contribute, including common carriers, private carriers, ISPs, others.

Western Wireless, mobile provider that competes with rural telcos, said current system should be “fine-tuned” but not replaced because it was consistent with state universal service programs and, although “not perfect, it was fair because contributions are based upon carrier revenue derived from customers.” Western Wireless recommended adjusting present system by basing it on “current revenues or as close to current revenues as possible.” That would solve revenue lag problem which is “patently unfair” to carriers with declining revenues, it said.

VoiceStream said it had 3 concerns about coalition’s connection-based proposal: (1) It wouldn’t meet Telecom Act’s nondiscrimination requirements since it would require more payment from wireless and local companies than long distance. (2) It wouldn’t result in more efficiency or savings. (3) Customers would end up contributing more to USF. VoiceStream said it thought “real problem” wasn’t how USF was collected, but how many services had to be supported by those contributions. “There should be a thoughtful reexamination of the panoply of services that have effectively become an expanding universal service entitlement,” VoiceStream said. “Unless USF subsidies are more carefully targeted, American consumers will pay more -- regardless of whether carrier assessments are based on a percentage of interstate revenues or a fixed fee per network connection.”

American Public Communications Council said this was good time for agency to “revisit” its decision of several years ago to require payphone service providers (PSPs) to pay into USF. FCC’s decision in 1997 to require payments from PSPs “was based on an erroneous premise,” council said. FCC “mistakenly classified LEC payphone service as service provided by telecommunications carriers and thus subject to mandatory universal service payments,” group said. Then, based on that “misclassification,” Commission applied requirement to independent payphone providers as well, council said. Group said there were “compelling reasons” to exempt PSPs from payment. For example, it said: “Payphones ‘contribute’ to universal service by providing the public with a unique service, available at all times to all members of the public, priced affordably on a per-use basis and free for emergency calls.”