Universal Service Decisions to Affect States, NARUC Told

NARUC backed Nebraska in its 2007 court case with Vonage, with the FCC filing a belated amicus brief. Oral arguments on the PSC appeal are set for Dec. 12. Meanwhile, at its Dec. 18 meeting the FCC is expected to vote on major revamps of the federal USF and commission oversight of intercarrier compensation. The commission’s decision to put off the votes left the NARUC meeting schedule with gaps. Several sessions had been intended to address the results of much-anticipated November votes on those matters, including one titled, “USF and ICC Reform: What Did the FCC Do?”

The Nebraska assessment case and the still-proposed rulemakings have state regulators looking for guidance in FCC documents and commissioners’ statements. FCC Chairman Kevin Martin seems to back Nebraska’s campaign to assess VoIP providers, said Vanicek, stressing the need to have that authority affirmed on appeal. Unless Nebraska and other states can assess VoIP providers for contributions, technological evolution will erode the assessment base, she said.

In Nebraska, nomadic and fixed VoIP service generates unassessed yearly revenue of $5.5 million, Vanicek said. If assessed, that would bring the state $385,000 annually, she said. Some there predict Qwest, Windstream, Cox and other providers will embrace VoIP, she noted. Estimates have as many as a third of Nebraskans migrating to VoIP. If that occurs by 2011, 29 percent of revenue now assessed to support the Nebraska USF will have moved to VoIP and out of USF assessment range, she said.

Nebraska’s stand on behalf of state assessments for VoIP drew praise from Ken Pfister, vice president for strategic policy of Nebraska-based Great Plains Communications. State fund support enables companies like his to “do the broadband work that regulators require of us,” Pfister said. “The Vonage appeal is costing the PSC time and money, but they're doing the right thing … . The question is, does VoIP pay, or does it not pay?”

The FCC sends confusing and inconsistent signals on state universal service funds and its own handling of intercarrier compensation, Pfister said. And VoIP, as yet only in the toehold stage of gaining market share, may be too immature for USF assessment, since it’s also not ripe for companies like his to take up, he added. “Right now it’s too expensive and our networks aren’t ready,” Pfister said. He empathizes with Vonage’s resistance to the state USF assessment, he said: “I'd rather not pay, either.”

Contrary to assumptions, VoIP doesn’t have a significant rural presence, Pfister said. “There’s not a lot of Vonage in rural Nebraska,” he said. “It’s in the more metropolitan markets. If you don’t have a network, you don’t have Vonage.” For practical purposes the core differences between VoIP and traditional telephony are “more of a political matter than a reality,” he said. But once the economies of scale and cost are in order broadband companies like Great Plains will be taking up VoIP, he predicted.

The Nebraska case spotlights competitive neutrality as a factor for state and federal universal service funds, said Jose Jimenez of Cox Communications’ Atlanta office. The tilt is toward incumbent technologies, he said. Cox pays into state universal service funds, sometimes finding that the USF fees it charges customers go to help not the people being charged but their neighbors, who use qualifying technology, he said.

“The question is, how do we make the funds truly competition-neutral?” Jimenez asked. “In the coming years, as the FCC looks at universal service, it will have to ask what the state funds do in terms of adding value in helping the poor and extending service. What makes sense for the states in terms of the federal fund?” Implementation of proposals to have the federal USF shift from revenue-based to number- or line-based assessments would complicate the discussion even more, Jimenez said.

AT&T has been pushing the FCC to settle uncertainty over the scope of an order exempting Vonage from federal USF assessment, said David Hostetter, associate vice president of public policy. When and if that clarification comes, it could mean VoIP providers with the same characteristics as Vonage get preemption, he said. Calling universal service a “bedrock,” he acknowledged that the migration from traditional telephony to VoIP means service funds will see their assessment bases wither.

If the FCC accepts the arguments made by AT&T and others who say VoIP is an information service, the FCC in effect would seem to be prevented from imposing universal service fees on information service providers, committee member Cary Hinton, management analyst with the D.C. Public Service Commission, said. That logic could be extrapolated to bar assessment of E-911 fees and state and local taxes, he said.

If the FCC moves to a numbers-based methodology, matters could be confused, said Vanicek. “Revenues are cleaner,” she said, saying VoIP providers have many ways to obtain numbers, which could make collection more difficult. Jimenez disagreed, saying the current method isn’t clean either, saying VoIP providers can’t get numbers directly.

These details may be mooted by a larger evolutionary change, Pfister said. Though distant, the shift from number to IP address is going to occur, he said. “Can you assess an IP address?” he asked rhetorically. “I would not want to see that become another USF loophole.” The real issue is fairness to consumers, he said. Vanicek agreed, saying Nebraska and other early adopters of state universal service funds were seeking in the aftermath of the 1996 Telecom Act to rebalance matters in consumers’ favor, bringing local rates up and access rates down. -- Michael Dolan

NARUC Notebook…

The goal of ubiquitous broadband in the U.S. is interwoven with efforts to reform the federal Universal Service Fund and those to enhance federal and state regulatory collaboration, FCC Commissioner Deborah Tate told NARUC telecom committee members Monday. Tate seemed to signal that the commission’s Dec. 18 meeting will see the expected vote on USF and intercarrier compensation reform. There’s still time to weigh in on the matters, and states should take every opportunity to make their voices heard, she said. Deployment of and access to broadband is key to the country’s future, not only in telecom but in health care, education and energy conservation, she said. “Convergence is past,” Tate said. “Cellphones are movie theaters, everyone is in the broadband business.” Federal USF reform offers opportunities as well as illustrations of key principles, Tate said. “Regulators can’t know where the market is taking us,” she said, citing the constant evolution of technology and unexpected applications of it. “States are integral to the federal effort,” she said. “The FCC needs to learn from your expertise.” For example, states can play an important role in the accelerating effort to inventory and map broadband service nationwide, she said. All parties -- Congress, the FCC, states and industry -- should put their shoulders to that wheel, Tate said.

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Early in 2009, the National Regulatory Research Institute will report on competitive issues involving special access in certain markets, NRRI representatives told the NARUC telecommunications committee Thursday. “If the data support conclusions of regulatory significance, the NRRI report will assess the extent of wholesale point-to-point competition in major urban areas of the U.S.,” the update said. “Otherwise, the report will make recommendations regarding how state commissions or the FCC might improve their data collection to support more effective regulatory policies.” Researchers are gauging incumbent local exchange carriers’ market power over wholesale point-to-point services. If it finds that ILECs have such power, NRRI will assess whether they are using it to raise prices above competition levels, “particularly in areas subject to Phase II FCC regulatory flexibility,” they said. The researchers are examining the point-to-point communications market in large metropolitan areas. In particular, they're studying services on which competitive local exchange carriers and wireless carriers rely, including ILEC special access, competitive special access and substitutable services such as facilities-based Internet services and facilities-based wireless transport, NRRI said. The data that will underpin the report, collected since April by NRRI, came from buyers Covad, Sprint, T-Mobile, twtelecom and XO. Sellers providing “good information” include Verizon and Embarq. AT&T, Qwest and Windstream elected not to participate, the NRRI representatives said. The researchers have made several rounds of data collection, the most recent received Nov. 11. They expect to report in mid-January, they told telecom committee members.