FCC ADVISERS REASSURE NTCA ON IMPORTANCE OF UNIVERSAL SERVICE ISSUES

NTCA members said later they were pleased the Commission at least was aware and knowledgeable about their concerns. However, in a lengthy Q&A session, they made clear they thought regulation was harming their service to customers. One questioner said his family-owned company had $6 million in loans and might not have the ability to repay them if it lost some of its universal service funding. Members complained that their competitors gained universal service funding without providing the same level of service. “We are co-ops because no one else wanted to be in our territories,” another member told the advisers, asking which was more important -- using the Universal Service Fund (USF) “to support competition or cost recovery.”

Lisa Zaina, adviser to Comr. Adelstein, said the commissioner was sympathetic to their concerns about competition’s draining available universal service monies. However, she warned that there was language in the Telecom Act that encouraged rural competition, although in somewhat less strong terms. She said the act said the states “shall” give ETC (eligible telecom carrier) status to competitors in nonrural areas and “may” do so in rural areas. ETC status qualifies a carrier to gain universal service funding in high-cost areas. She told the audience “I understand your frustration” but some provisions of the Telecom Act were difficult to implement.

Dan Gonzalez, adviser to Comr. Martin, said universal service would be the “next big issue” among wireline proceedings at the Commission. He said Martin generally supported a recommendation by the Federal-State Joint Board that rejected adding advanced services to the list of those supported by the USF. However, he said Martin also would encourage parties to provide more data on why they thought the state of technological development made it necessary to add advanced services to the list. Advisers said the rough idea of timeline included action on universal service definitions by July, intercarrier compensation in the fall and changes in the contributions methodology by the end of year.

Gonzalez said Martin had questioned the use of universal service support as a means of introducing competition to rural areas “where service is prohibitively expensive for even one carrier.” He said Martin had expressed concern that competition in very high-cost areas “leads to stranded investment and also a ballooning of the universal service fund.” He said the commissioner asked him to deliver this message: “Time is of the essence. Without action by the Joint Board and the Commission on fundamental portability rules, pressure on the fund is only going to increase.” He said his boss also was concerned that the FCC not stray from the Telecom Act’s requirement that rural rates be comparable to urban rates, which is accomplished through USF support.

Jordan Goldstein, adviser to Comr. Copps, warned the group they could face tariffing problems if the FCC ruled that DSL providers didn’t have to pay into the USF. The comments referred to an issue that has been brewing at FCC since late last year, born of the fact that DSL revenues were subject to USF contribution obligations and cable modem service revenues weren’t. The reason is cable isn’t regulated under the Title 2 wireline part of the Communications Act. Goldstein warned that if, in an effort to gain parity, DSL was deemed a Title 1 information service and not subject to USF payments, an unrelated problem could arise -- the carriers could have trouble recovering their DSL costs through tariffs and the NECA pool because DSL wouldn’t be a regulated service. “Under our rules, we don’t mix regulated and unregulated costs,” he said. Goldstein said he didn’t know whether that would be a problem, but “my boss is uncomfortable moving to Title 1 until we know the answer.” Copps has been on record as supporting an alternative idea of gaining parity by requiring both DSL and cable modem service to contribute.

NTCA also gave members a sneak preview of a study showing 97% of rural telcos offered broadband service. NTCA Economist Rick Schadelbauer told the group the figures disputed the idea that there was a “digital divide” between urban and rural areas. The survey is based on responses from 1/3 of NTCA’s membership, which Schadelbauer said offered a good reading. Not surprisingly, 92% of the respondents said they were using DSL, while 17% unlicensed wireless, 8% fiber- to-the-home, 7% cable modem service, 3% licensed wireless. The numbers don’t add up to 100% because some members use more than one type of technology. Asked about barriers to broadband deployment, survey respondents listed in order of importance: deployment costs, low customer demand, loop length, regulatory uncertainty.

NTCA said its members emphasized several key points on universal service to their members of Congress in meetings Wed., including: (1) The FCC should expand the universal service contribution base to include the broadest base of providers and revenue. (2) Competitive eligible telecom carriers should receive universal service support based on their own, not incumbents’, cost, of doing business. (3) The FCC should follow the law and not allow competitive ETCs to use universal service support as a means to subsidize competition. (4) States and the FCC should work to strengthen the public interest standard by which competitive ETCs are designated to receive universal service support.

NTCA members also stressed that a “one-size-fits-all” approach didn’t work with universal service. NTCA argued that regulatory flexibility was needed. Members said universal service policies should include: (1) Accommodation for the difference between rural and urban areas, as well as between the size of the carriers. (2) An option for small incumbent exchange carriers to remain rate-of-return (ROR) regulated and to participate in the National Exchange Carrier Assn. pool. (3) Recovery of costs of total investment to continue to ROR carriers. (4) Provision of sufficient support for rural carriers to ensure that the redefinition of wireline high-speed Internet access services didn’t change the contribution base.

Industry sources told us that Senate Commerce Communications Subcommittee Chmn. Burns (R-Mont.) would schedule a hearing next week on universal service issues. They also said Rep. Terry (R-Neb.) was working on legislation that would address the nonrural side of the high-cost fund of universal service. Sources said the bill would attempt to adjust how the fund was distributed so that more areas could receive portions of the money.