ILECs SEEK LARGER FUNDING POOL FOR E-RATE PROGRAM

Verizon plan would leave universal service contributions from nonbroadband consumers relatively unchanged, would increase contributions $1 per month for cable modem customers and decrease fee for ILEC DSL customers nearly $2, Verizon said. Decrease for DSL customers is necessary, Randolph said, because with more contributors to USF, percentage charged to ILECs such as Verizon would be reduced. Verizon proposal “corrects the imbalance” between ILECs and cable companies, Randolph said, with former required by 1996 Telecom Act to contribute to USF for schools and libraries while cable, not being regulated as telecom provider, is not. Broadening base of donors ensures USF’s stability, Randolph said, and limiting contributions to only schools and libraries fund “also moots potential arguments that if broadband providers contribute to all portions of the federal program, broadband services should also be supported by the fund.” Randolph told us Verizon was opposed to extending USF to fund broadband deployment.

NCTA and Comcast told FCC that issue of cable contributions to USF should be vetted in comprehensive proceeding, rather than as part of rulemaking assessing whether ILEC broadband services should be reclassified as information service. Applying USF obligations to cable would classify cable under Telecom Act, in this purpose, as telecom provider, which Randolph said would be accurate. Cable broadband had been defined by FCC as an information service and ILECs were seeking same definition in this rulemaking for DSL, but underlying transport for both broadband services was telecom, and ILECs would continue to be subject to USF contributions, he said. But Comcast asked FCC to consider “whether an entity that uses telecommunications can properly be deemed to provide telecommunications when it only offers an information service.”

Cablevision Systems said FCC under Sec. 254(d) could extend USF obligations to non-common carrier only under special circumstances, and argued that FCC had not met that burden here. Cablevision said applying USF obligation to cable broadband could slow deployment “by creating additional upward pressure on customer rates.” It also said cable operators paid franchise fees in connection with cable modem service, so USF obligation “would place cable operators at a disadvantage vis-a-vis their competitors who are not subject to local fees.”

Randolph said ILECs were at disadvantage to cable operators because they had to pay USF fees that cable didn’t. As for ISPs, any reseller ISP selling DSL from ILEC wholesale purchase would have USF fees passed on to its customers, but Randolph said that occurred now, and rate for those resellers would decrease if cable operators were added. Cable operators allowing open access to other ISPs could pass costs on to those ISPs as well, he said. But Charter Communications told FCC that “ILECs have never before blamed their USF obligations as a reason why they have lagged so far behind in broadband deployment, not even in the pending proceeding to modify the USF contribution methodology. The ILECs’ delay in rolling out broadband services has nothing to do with USF.”

Charter accused Verizon of trying to “impose a ‘double contribution'” on cable by requiring it to contribute to schools and libraries portion of USF when it already had spent 13 years on Cable in the Classroom program, providing cable modem access to 78% of K-12 students in U.S.: “The cable industry should not have to make the same contribution twice.” “I acknowledge that they have done that,” Randolph responded, without agreeing that was reason for cable to evade USF obligations. Charter also called ILEC proposals to have cable contribute to USF “’transfer payment’ from cable operators to the ILECs to fund the deployment of the ILECs’ networks.” Randolph disputed that charge, saying Verizon was proposing contributions only to schools and libraries fund, which offers discounts for broadband installation. “The Fund can be used by schools and libraries [to contract with] any provider,” including cable operator, he said.