UNIVERSAL SERVICE CONTRIBUTION FACTOR REFLECTS FCC CHANGES

Among the interim fixes is a new requirement barring carriers from including a markup beyond their universal service contributions if they choose to pass costs on to customers through line items on bills. Because the line items listed by the 3 largest IXCs are higher than 9%, the proposed contribution factor for the 2nd quarter means they will have to trim that figure for consumers for the period, sources said.

CTIA said the changes “dramatically” increased the contributions wireless consumers had to provide to support universal service. Among a series of interim changes adopted by the FCC in Dec. was a near doubling of the wireless safe harbor. “Yet wireless carriers will only receive approximately 3% of the nearly $3 billion distributed in 2003 by the ‘high-cost’ portion of the fund,” CTIA said. Steve Berry, CTIA senior vp-govt. affairs, said: “The real losers in all of this are the very people USF [Universal Service Fund] was designed to help -- the rural and low-income consumers who are denied wireless service.”

The contribution factor determines how much funding carriers have to provide to the universal service fund. FCC Comr. Adelstein alluded to the extent to which the new factor could result in lower line item charges on customer bills in a speech at an OPASTCO conference last week (CD March 6 p5). As part of the interim changes in universal service funding, the Commission’s rules now require that a line charge not exceed the contributions factor multiplied by the customer’s interstate bill. The lowest factor in carrier line charges now is 9.99% and ranges up to 11%, a source said.

The proposed contribution factor released Fri. fully reflects recent FCC changes, including those adopted in Dec., sources said. By comparison, the last contribution factor, for the first quarter, was 7.29%. Among the changes in this higher figure are: (1) The FCC, as of April 1, no longer will bolster the high-cost fund with unspent money from the E-rate program. In the past, if unused E-rate funds weren’t applied to the contribution base, the factor would have been much higher. The higher wireless safe harbor has been seen as mitigating the impact of that change. (2) The Commission increased to 28.5% from 15% the safe harbor for wireless carriers that chose not to break out the amount of interstate calling they carried. It said wireless carriers could rely on the 28.5% safe harbor or explicitly provide a break-out of the percentage of revenue based on interstate calling. Several sources said it was too early to tell the extent to which carriers would be relying on the new, higher safe harbor number. (3) The FCC based universal service contributions on projected and collected revenue instead of on historical, gross-billed revenue. The point of that change was to address the “lag” problem faced by IXCs that had declining revenue. The lag represented the 6 months between the time that the FCC assessed carrier contributions and when carriers made payments.

In light of the Dec. interim order (CD Dec 16 p1), carriers must have basically the same factor on their bills as the contribution factor adopted by the FCC, an industry source said. “The bottom line is that the factor on customers’ bill will be lower” for carriers such as WorldCom, AT&T and Sprint, the source said. The rationale for the requirement that carriers’ line charges not be higher than the contribution factor is that the changes addressed the lag problem of companies with falling revenue when the contribution factor was based on revenue from 2 quarters ago, the source said. “In the FCC’s mind, that eliminated part of the reason for long distance carriers or any carrier to charge a higher line item,” the source said. “The cellular carriers have to make higher contributions than in the past. Their customers may see an increase.”

CTIA said Fri. that in 2000, wireless carriers received $2 million in USF high-cost support. Due to increases in eligible telecom carrier status, in 2003 mobile operators are expected to receive $201 million in USF support, the group said. In the same period, universal service support to ILECs rose to nearly $3.2 billion in 2003 from $2.1 billion in 2000. “While wireless carriers have collected an additional $175 million in USF support over the past 3 years, during the same 3-year period, ILECs have increased their take from the Universal Service Fund by $2.7 billion. This means that ILECs have collected $15.38 in new Universal Service Fund support for every additional dollar provided to wireless carriers,” CTIA said.

As for the expected line item changes for long distance customers, several sources said the most recent changes that led to the increased contribution factor represented “an adjustment to try to make things better” for carriers with falling revenue while the FCC examined broader changes. “The FCC hasn’t finished what they were doing,” a source said.

A public notice released Fri. said that starting with this quarter, the FCC calculated the quarterly contribution factor based on the ratio of total projected quarterly costs of the universal support mechanisms to contributors’ total projected end-user interstate and international telecom revenues, net of projected contributions. The proposed factor will go into effect if the FCC doesn’t act by 14 days after the bureau’s announcement -- http://hraunfoss.fcc.gov/edocs_public/attachmatch/DA-03- 689A1.txt.