FCC APPLIES UNUSED E-RATE FUNDS TO REDUCE CARRIER USF PAYMENTS

FCC said unused funds would be used to reduce contributions for no more than next 3 quarters, ending March 2003. During that time, Commission will work on more permanent solution to contribution problem. Agency said demand on USF had grown nearly threefold to $5.5 billion from $1.9 billion in 1997 but revenue base had gotten smaller, increasing carrier contributions. Carriers with declining revenue such as AT&T face additional problems because their contributions are based on 6-month-old revenue data. By time such carriers have to make their contributions, their revenue has dropped and they have to raise fees to customers to get amount of money required.

Powell said he was concerned about only one small part of order -- decision to limit funds transfer to only next 3 quarters. He said he would have preferred to leave open question of when to stop transfer of unclaimed funds. “I think it would have been more prudent to answer that question with fuller knowledge of how contribution reform will play out and with a clearer sense of the degree to which such reform actually does improve fund stability,” he said. That is “slight concern” compared with “beneficial compromise that I have been able to reach with my colleagues under unavoidably tight time constraints, to prevent unnecessary disruption to carriers, consumers and the integrity of our universal service programs,” Powell said.

Comr. Martin said he supported idea of stabilizing USF contributions but “I would have taken a different path to achieve relief for consumers.” Agency should have addressed some of near-term problems facing carriers before it turned to unused e-rate funds, especially since “demand for the schools and libraries program has always exceeded the cap,” he said. “While we continue to address the long-term issues, I believe we should address the various inequities that require certain service providers and their customers to bear a disproportionate share of funding the universal service system,” Martin said. “I believe we should have take these steps first before taking any unused monies.” He said, for example, that AT&T customers faced USF fee of more than 11% while customers of new long distance entrants, with rising revenue, paid around 7%.

Comr. Copps said action would give stability to e-rate program too by assuring that unused funds went back to program after March 2003. “My interpretation has always been that our rules were already clear that unspent funds could be moved into the following year’s program,” he said. “Today’s action removes any doubts that may previously have existed.” Although agency has given itself until first quarter 2003, “I see no reason why we cannot complete our work [on USF contribution reform] and implement any new rules by the end of this year,” he said. It’s also good that consumers won’t be asked to foot significantly increased USF fees, he said. However, benefits of order will be realized only if FCC completes permanent solution, he said. “So we have our work cut out for us.”

At same time, FCC Wireline Bureau denied earlier AT&T request to base its contribution percentage on estimated future revenues rather than past revenues. Chmn. Powell said he supported decision because it could have increased USF line item on phone bills of all customers. “To support this petition would be to shelter one particular carrier’s customers from the even-handed application of our rules at the expense of customers of other carriers,” he said. Comr. Martin said he disagreed with decision because current rules placed carriers such as AT&T, and their customers, at disadvantage.