CONNECTION-BASED METHODOLOGY SAID TO HURT LOW-VOLUME CONSUMERS

The report said the current revenue-based contribution methodology for the USF was the “fairest” approach for both carriers and consumers, while the connection-based proposals would shift a large portion of the USF assessments from businesses to residential customers. “This shift could cause low-income and low-volume users to drop their phone service and contradicts the FCC goal of increasing telephone subscribership,” said James Bachtell, Georgetown U.’s Institute for Public Representation staff attorney.

Instead of balancing the contributions among various providers, the connection-based mechanism would “simply allocate the costs differently among the providers,” the report said. Mark Cooper, Consumer Federation of America (CFA) research dir., said counting each dial-up, wireless and high-speed Internet connection, as well as larger trunk lines for businesses “is not as simple as it sounds.” He said all services should be included in the USF pool, since the distinction between local and long distance had been “blurred” by technology and business practices. Kramer said the wireless safe harbor should be increased to allow carriers to assign the percentage recovery equitably preventing residential consumers from being further disadvantaged.

The FCC should keep the current revenue-based system, as “there are fairly reliable checks on the accuracy of reported revenue,” the report said. Darby Assoc. Pres. Larry Darby said counting connections or sharing responsibility between access providers and transport providers “opens up new and unknown opportunities for gaming and tax avoidance.” Bachtell said the FCC’s interim measures adopted in Feb. would sustain the USF until at least 2007. “By creating the wireless safe harbor, the FCC remedied the largest universal service assessment problem -- wireless carriers’ disproportionate contribution to the USF,” Bachtell said. He suggested the Commission implement an “all-revenue” plan, which, he said, would resolve the problem of determining whether income was derived from intrastate or interstate sources, especially as wireless, bundling and Internet telephony were growing.

Bachtell said the FCC should also consider expanding the pool of contributors by including services such as broadband and Internet telephony: “This would spread the burden and reduce the hardship on consumers.” Cooper said to the extent Internet telephony benefits from the ubiquitous telephone network, “it ought to pay its fair share of the cost of the network that support the services sold over the Internet,” and “that would solve the problem of the threat of Internet telephony to universal service.”

An AT&T spokeswoman criticized the current revenue-based system and said a number-based system would benefit consumers: “There needs to be a sustainable competitively neutral way of collecting universal service fees, and the current methodology doesn’t fall under either of these categories.” She said as of July 1, the assessment rates would go to 9.5% from 9.1%, and “it means that customers would pay more money.” She said with the change of assessment factor, low-volume customers would have to pay as much as 60 cents plus 9.5% on interstate long distance calling, while under the number-based plan, the same low- volume customer would pay $1 total, and lifeline customers would be exempt. An MCI spokeswoman said the connections- based approach was “the best way to ensure the continuing viability” of the USF, and it would “be cheaper for consumers.” A USTA spokeswoman said that with rapid changes in technologies and exponential increases in the demands on universal service, “the current system just can’t keep up. Unless bold steps are taken, the very customers that this study identifies as being particularly vulnerable will be the first ones to feel the devastating impact when the existing universal service structure implodes.”