Congress has “an obligation to get involved” in overhauling the Universal Service Fund, House Communications Subcommittee Chairman Greg Walden, R-Ore., said after a subcommittee hearing Thursday. (See separate report in this issue.) He said he wants to ensure that USF money goes to places that really need it and that the fund is managed properly. “We've had some very productive discussions with some of our committee members and developed some principles and are working on some further principles,” Walden said. He said Rep. Lee Terry, D-Neb., who last year introduced a USF revamp bill with former Rep. Rick Boucher, D-Va., will play a key role in the discussion. Walden again said there’s no specific date for introducing the Republicans’ planned resolution of disapproval against the FCC net neutrality order, but it will happen after the order appears in the Federal Register.
Federal Universal Service Fund
The FCC's Universal Service Fund (USF) was created by the Telecommunications Act of 1996 to fund programs designed to provide universal telecommunications access to all U.S. citizens. All telecommunications providers are required to contribute a percentage of their end-user revenues to the Fund, which the FCC allocates for four core programs: 1. Connect America Fund, which subsidizes telecom providers for the increased costs of offering services to customers in rural and remote areas 2. Lifeline, which directly subsidizes low-income households to help pay for the cost of phone and internet service 3. Rural Health Care, which subsidizes health care providers to offer broadband telehealth services that can connect rural patients and providers with specialists located farther away 4. E-Rate, which subsidizes rural and low-income schools and libraries for internet and telecommunications costs The Universal Service Administrative Company (USAC) administers the USF on behalf of the FCC, but requires Congressional approval for its actions. Many states also operate their own universal service funds, which operate independently from the federal program.
States aren’t expected to be squeezed out of the Universal Service Fund system anytime soon and they'll actively engage in the FCC’s USF and Intercarrier Compensation proceeding, Tony Clark, president of the National Association of Regulatory Utilities Commission, said in an interview. The FCC voted Tuesday to issue a broadly worded rulemaking notice to reshape the USF and ICC system (CD Feb 9 p1). The notice has an entire section on the role of states, an FCC official told us.
FCC Chairman Julius Genachowski abandoned trying to use Title II authority in the net neutrality order, but his proposed overhaul of the Universal Service Fund may revive the reclassification debate, an industry official and a former Obama administration adviser each told us. Genachowski wants to refocus the fund to support high-speed broadband, and his staff has drafted a notice of proposed rulemaking that the commission is expected to vote on next week. Congress is poised to jump into the universal service deliberations (CD Jan 28 p4).
FCC Chairman Julius Genachowski is taking an aerial view of revamping universal service and intercarrier compensation in a new rulemaking notice. It takes up in general the necessity of subsidizing and deploying high-speed broadband but leaves contentious questions like the contribution factor for another day, commission and industry officials said. As expected, the FCC circulated a rulemaking notice late Tuesday for the commission meeting Feb. 8. The commission wants to use “market-driven, incentive based policies and increased accountability” to shift universal service money to “near term support for broadband deployment in unserved areas,” the agency said in a news release. It seeks to adopt measures to address intercarrier compensation (ICC) “arbitrage, as well as a long-term transition from current high-cost support and ICC mechanism to a single, fiscally responsible Connect America Fund,” the FCC said.
Payphone operators’ request for emergency cash and long-term Universal Service Fund support was panned by Sprint-Nextel, Verizon, USTelecom and TracFone Wireless. The American Public Communications Council filed a petition last month asking the FCC for about $57 million in emergency Lifeline money and for a proceeding on whether payphones should receive universal service support permanently (CD Dec 6 p6). The petition drew support from the Florida Public Telecommunications Association, which said that the collapse of the payphone industry “has been greatly exacerbated in Florida and other states … due to the introduction of ‘free’ governmentally supported cell phone service offered by TracFone and more recently Virgin Mobile.”
Nullification of FCC net neutrality rules through the Congressional Review Act topped a list of communications and technology priorities for Republicans on the House Commerce Committee. Also listed in a staff memo Tuesday as “key issues” this year: Spectrum auction legislation, revamping the commission’s processes, broadband stimulus oversight and a Universal Service Fund overhaul. Colin Crowell, former aide to FCC Chairman Julius Genachowski, said on a panel Wednesday at the State of the Net Conference he doubts that the GOP’s planned resolution of disapproval concerning net neutrality will succeed.
Frontier Communications, which took over Verizon’s lines in 14 states last July, is set to increase rates for its FiOS video products due to rising cost, executives said in an interview. Broadband deployment and other Verizon transaction obligations as well as access revamp will be Frontier’s priorities this year, they said.
CTIA supports “elements” of the Federal-State Joint Board on Universal Service’s recommended decision on changes to the low-income Universal Service Fund program, the group said in an FCC ex parte filing. The association reported on a meeting last week with Wireline Bureau officials. CTIA supported the board’s recommendation of the use of a national database for determining consumer eligibility for low-income Lifeline support, the filing said. “CTIA urged the Bureau to ensure that establishment of the database is done in a comprehensive manner that accommodates modern communications and addresses issues of waste, fraud and abuse,” the filing said. “Additionally, CTIA urged the Bureau to consider the national scale of the USF low-income programs and avoid a patchwork of 50 separate databases for eligibility without a national aggregation point."
The IRS properly assessed AT&T more than $505 million in taxes from universal service payments made to the company because the funds should be considered income and not capital contributions, a three-judge panel of the 5th U.S. Circuit Court of Appeals in New Orleans ruled last week. AT&T had lost its case on summary judgment at a lower court and appealed, arguing that its money it got from USF was capital contributions that shouldn’t count as gross income for tax purposes. The panel upheld the summary judgment, ruling that under both the relevant statutes and the Supreme Court’s 1973 U.S. v. CB&Q Railroad decision the government’s intentions in handing out the money are determinative. AT&T officials did not respond to a request seeking comment. An FCC spokesman declined to comment. The court’s decision concluded that the transferor didn’t intend the funds to be a contribution to capital, tax expert Rob Willens said. The funds instead were intended to be a supplement to AT&T’s income to compensate it for the lost revenue and increased costs it incurred in serving low-income, high-cost users, he said. Transfer of funds, as the court said, didn’t exhibit the “characteristics” of a contribution to capital as set forth by CB&Q, Willens noted. He said states would also tax these amounts because most, if not all, states use federal taxable income, with certain adjustments, as the tax base.
Interconnected VoIP subscriptions jumped 22 percent to 26 million in 2009, while the number of switched access lines fell 10 percent to 127 million, the FCC said Wednesday in a report on local telephone competition. The number of wireline retail connections fell by 6 percent to 153 million in 2009, the report said. The report may show a decline in the total number of wirelines, but VoIP still relies on wireline broadband connections and many wireless services still rely on wireline facilities, said a spokeswoman for the National Telecommunications Cooperative Association. Policymakers “must make sure that high-cost support mechanisms are available to support the deployment and maintenance of critical network facilities,” she said.