Communications Players Cast Wide Net for Fresh USF Funding Sources

As Congress and the FCC gear up for possible overhauls of the USF contribution system, communications industry players are lobbying lawmakers and policy makers for their particular financing schemes. Each claims its plan will strengthen the USF while making it broader and fairer.

Advocates say such changes are needed because the $6.5 billion USF relies on a dwindling stream of revenue from interstate and international calls. The fund is in no danger of running out of money, since its assessment fees automatically are adjusted upward each quarter. However, the fees have broken the 10% barrier traditionally considered the cap, raising alarm throughout telecom. In fact, the contribution factor rose to a record 11.1% of interstate end-user revenue 2nd quarter, topping 10% for the 2nd straight quarter.

“The contribution factor is going up every quarter,” said Kathleen Grillo, Verizon vp-federal regulatory policy. “It just sort of heightens the awareness of the issue.”

To lessen the load on interstate and international phone revenue and spread the burden, some lobbyists are urging Congress to extend contribution requirements to intrastate phone revenue. They argue it makes no sense to levy fees on some phone calls but not others. The FCC has tried to do this in the past but the federal courts have blocked it, ruling that the Commission lacks the authority under the Telecom Act.

“Our goal is to broaden the base, thereby creating equitability,” said Ed Merlis, USTA senior vp-govt. & regulatory affairs. “If you expand the base, you can lower the amount you're levying per unit.”

Wireline phone industry officials also call for assessing VoIP providers, plus cable operators and ISPs venturing into the telephony business. While most major MSOs in the phone business do pay USF fees directly, at least one, Cablevision, pays into the fund indirectly. Several other VoIP providers, such as Vonage, also pay into the fund indirectly through payments to CLECs. But, critics charge, even VoIP providers that do pay generally don’t contribute their share. “The common denominator is that if the service ultimately needs to touch the public switched telephone network, then you ought to pay,” Merlis said.

In addition, some phone industry lobbyists are pushing the FCC to slap USF assessments on all broadband services. They want to make sure all cable operators providing high-speed data service, not just the ones delivering phone service, pay the same way phone DSL providers do. Verizon executives, for instance, are promoting the idea as simple fair play. “Cable modem service doesn’t pay, but DSL does pay now,” Grillo noted. But, she insisted, “it’s not an issue of who’s not paying… It’s more of a competitive equity issue now.”

Not surprisingly, cable executives don’t agree. NCTA officials staunchly oppose extending USF fees to cable modem service because it’s not a voice product. They also argue it would deter consumers from upgrading to broadband service, making it harder to reach one of President Bush’s key telecom goals.

“Broadband is a different animal,” said Rick Cimerman, senior dir.-state telecom policy for NCTA. “We do not believe that broadband services in and of themselves should be assessed for universal service.” Besides, he said, “putting a tax on broadband is not going to help on penetration or further deployment.”

Instead, cable executives and other communications officials back a concept advanced 2 years ago by an AT&T- led coalition. In its latest version, the AT&T plan calls for assessing phone providers based on a combination of phone numbers and connections. Under the plan, there would be a simple $1 per number monthly charge on all 600 million working phone numbers in the U.S. Business users with connections but no phone numbers would pay based on the size of their connections.

“We thought that would be a legally doable approach,” said an AT&T official. “In the aggregate, numbers are growing each year, which means we wouldn’t have worries about the declining IRR. And we wouldn’t be irritating our customers every quarter by changing their assessments.”

The idea of a numbers-based system has picked up steam since AT&T first proposed it, with such companies as Verizon now openly discussing it. “Essentially, there’s just not a clean way to assess VoIP providers” using a revenue-based system, Grillo said. “We're still working through a lot of details.”

But consensus within the communications industry hasn’t been achieved, making it trickier for policy-makers to proceed. For example, smaller rural phone companies, at the center of the USF funding debate, still oppose the idea because they fear coverage would not be comprehensive.

“We were not enamored of the idea put forth last year of going to strictly a numbers-based or connections-based contribution system,” said Tom Wacker, NTCA dir.-govt. affairs. “That would let too many players off the hook. We want to stay with the revenue-based approach, perhaps combining revenue with something else that vastly expands the contribution base in terms of players.”