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BURNS SAYS USF BILL COULD BE INTRODUCED BEFORE SESSION'S END

Senate Communications Subcommittee Chmn. Burns (R-Mont.) said he wasn’t sure when he will introduce the Universal Service Fund (USF) draft bill that has been floating around for some time, but said it could be before this session ends (CD Oct 28 p1). “We're thinking pretty quick, we think,” he said. Burns also said that once recommendations were received from the Federal-State Joint Board that’s studying USF distribution methods, further legislation might be warranted. “We don’t want to go down the distribution route until we see what the Joint Board has done,” he said. “I don’t want to preempt them in any way.”

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At a Thurs. Senate Commerce Committee hearing on USF, senators stressed the need for reform of the fund. FCC Chmn. Powell was the hearing’s only witness. Burns noted the growth in the fund, saying it had increased more than $5 billion since the 1996 Telecom Act and now required a fee of more than 9% on interstate revenue. “Simply put, this trend is unsustainable,” Burns said. “We have a drastic problem.” His bill would broaden the base of contributions by allowing the FCC to collect fees on intrastate telephony.

Responding to senators’ questions, Powell appeared to support applying USF requirements to intrastate traffic. He said requiring USF contributions only from intrastate traffic had been an “impediment” to the fund. “There has been more convergence and now there’s little distinction between local and long distance,” he said. Powell said the current system gave carriers an incentive to misrepresent what portion of their traffic was interstate. He said the FCC had done a more diligent job of enforcing USF rules and, as a result, the burden on interstate traffic in the first quarter next year probably would be below 9%, rather than the 10% that had been feared.

Powell said the growing presence of voice-over-Internet protocol (VoIP) would require changes in USF. “As that metamorphosizes, so too must universal service metamorphosize,” he said, calling VoIP the largest category of migration. He said revenue-based approaches for contributions weren’t as stable as connection-based or number-based approaches. Powell said the Commission, in its study of USF, was considering a “hybrid” based on the connection-based and number-based systems. In response to concerns raised by Sen. Dorgan (D-N.D.), Powell said classifying wireline broadband as an information service (which the Commission has suggested but not fully enacted) wouldn’t necessarily prevent the FCC from applying USF requirements to it.

Senate Appropriations Committee Chmn. Stevens (R-Alaska) said all users of the telephone switch should have some obligation for USF contributions. He said the FCC should conduct a rulemaking in which long distance carriers, local carriers, wireless providers, satellite, cable, Blackberry and VoIP would participate. Stevens said intrastate revenue, as well as telephone numbers and other connections-based contribution models, should be considered. Price support should go to wireless providers in rural areas, he said, and the FCC should develop a federal standard for determining eligible telecom carriers (ETC) in rural areas. Stevens said USF support could be used to build out high-speed Internet access in rural areas. He also questioned whether USF support should be applied to schools and libraries. Dorgan agreed the base of contributions should be broadened but didn’t offer any specific recommendations.

Powell said the FCC’s contribution methodology must be reformed and “expanding the base to include intrastate revenues may be needed to stem the declining tide.” The growth of USF must be controlled and ideas to that end could come from Federal-State Joint Board now examining USF, he said. Powell also said some of the USF rules must be simplified and clarified, such as those that governed E-rate, low-income users and the rural health care program. At the FCC’s Nov. agenda meeting, “I will present to the Commission an item that will advance the important homeland security and public health interests of rural America by unlocking the funds that Congress has designated for rural health care providers,” Powell said.

Sen. Smith (R-Ore.) used the occasion to push his USF bill, S-1380, which would redistribute portions of the high- cost fund that now went to large ILECs serving rural areas. Currently, most of that fund goes to 3 states -- Ala., Miss. and W. Va. Smith said it was “unfair” that 42 states that contributed to the fund didn’t receive any return funds. The bill recently has picked up additional co-sponsors -- Sens. Brownback (R-Kan.), Craig (R-Ida.), Levin (D-Mich.) and Stabenow (D-Mich.) -- raising to 21 their total.

But Powell seemed skeptical of Smith’s concerns and said all states received some form of USF support, although most through funds that supported the smaller ILECs. The so- called “nonrural” fund is about $230 million and the rest of USF fund is $3 billion. Powell said Smith’s plan to refigure the distribution based on rate centers, rather than a statewide formula, could lead to a “massive increase in universal funding requirements.” He said a cap would have to be applied to the formula and wondered what would happen when “demand exceeds the cap.”