Federal Universal Service Fund

Congress has had “substantial” discussions with the Obama administration on crafting appropriate rules for the broadband stimulus grant program, due out in two weeks, House Communications Subcommittee Chairman Rick Boucher, D-Va., said Thursday at a Pike & Fischer conference. It’s pivotal how the agencies define “unserved” and “underserved” for purposes of awarding grants, Boucher said. “It is important we have a common-sense definition,” he said, suggesting that the absence of competition, prices out of reach of consumers and low speeds should be taken into account in defining “underserved.” “Unserved” should apply to areas with no service, he said, but the definition should be flexible enough not to penalize counties where a few people can get broadband service -- a situation that he dealt with when a county in his district was trying to get RUS grants. Stimulus funding will help deploy more broadband, but federal policymakers also need to consider other steps, such as revamping the universal service program to include broadband. Boucher said he is close to finalizing bipartisan USF legislation that has the support of many carriers and stakeholders. He told reporters he hopes Congress can pass that bill this year. He said he also plans to co-sponsor a bill introduced by Rep. Anna Eshoo, D-Calif., that would require new federal highway projects to include conduit for broadband, a measure that may get included in federal highway reauthorization legislation. The Senate has a bill like Eshoo’s that was introduced this week by Democratic Sens. Amy Klobuchar of Minnesota and Mark Warner of Virginia. -- AV

The FCC should block the imposition of a 12.9 percent universal service fund contribution factor, the highest in history, David Bergmann, chair of the National Association of State Utility Consumer Advocates telecom committee, said in an interview Tuesday. The FCC, which released the proposed new factor Friday (CD June 16 p4), has until June 26 to act before the percentage request is deemed granted. The higher factor could mean $1-$2 hikes on some consumers’ phone bills, Bergmann said. In a filing last week at the FCC, NASUCA said the commission could reduce the factor by directing USAC to dip into $1 billion in unused USF E-rate funds, or nearly $6 billion in assets held for the federal fund. NASUCA believes that that’s a good temporary fix but that the FCC ultimately must revamp USF distribution to limit payouts to companies that don’t actually need subsidies, Bergmann said. Moving to a numbers-based system for USF contribution, which has been suggested by wireline companies big and small, isn’t the answer, he said. The existing system of basing contribution on carrier revenue works because it means people who use long distance service more also pay more to USF, he said. However, if the FCC wants to direct USF funds to broadband, NASUCA supports requiring all broadband providers to pay into USF, he said.

Carriers must pay 12.9 percent of their long-distance revenue to the Universal Service Fund in the third quarter, 1.6 percentage points more than this quarter. Big phone companies were quick to note that’s the highest figure in the fund’s history. But some small rural carriers disputed that the high factor shows that a thorough revamp of USF is needed.

The FCC should set a goal for everyone in the U.S. to have broadband access by early 2014, major phone companies said late Monday as comments for the commission’s national plan continued arriving. There was wide agreement that overhauling the Universal Service Fund must be a high priority.

The FCC should reject the 12.9 percent contribution factor proposed by the Universal Service Administrative Co. for the universal service in the third quarter, said the National Association of State Utility Consumer Advocates. The new factor takes effect July 1 unless the FCC acts to modify it. In a request filed at the FCC late Tuesday, NASUCA said the FCC could reduce the factor by directing USAC to dip into $1 billion in unused USF E-rate funds, or nearly $6 billion in assets held for the federal fund. “With high unemployment levels, foreclosures across the nation and everyone’s household budgets being stretched thin, we call on the FCC to reduce the proposed hike in the Universal Service Fund’s contribution level,” said NASUCA President David Springe. “The goals of the universal service fund are extremely important, but to demand that consumers pay the highest contribution level in history is to hurt the very customers we are trying to help.”

An FCC report on rural broadband prescribes government intervention to spur availability and demand. The report, released publicly on Wednesday, was required by Congress in the 2008 Farm Bill and did not require sign off by all commissioners. Instead, writing in the first-person, acting Chairman Michael Copps highlighted common problems affecting rural broadband, including technological challenges, lack of data and high network costs. Copps also urged a revamp of the Universal Service Fund, new rules on network openness and an audit of all spectrum that the FCC has licensed, with an eye on where it is being used effectively or could see more use on a secondary basis.

The 8th U.S. Appeals Court should rehear en banc Nebraska’s appeal of a lower court decision barring the state from making traditional VoIP providers pay into its universal service fund, Nebraska officials said Thursday. A panel of the St. Louis-based court found May 1 that a U.S. District Court in Nebraska properly upheld an injunction Vonage obtained prohibiting Nebraska’s utility commission from assessing the VoIP company (CD May 4, p5). The en banc request challenges what the state called the panel’s “overbroad reading” of the FCC Vonage preemption order that the appeals court cited in rebuffing Nebraska. Contrary to what the 8th Circuit said, Vonage would not have succeeded with a claim to preemption that it deployed to obtain the injunction, the state argued. “Further, the Decision is based on a misapplication of the impossibility exception employed by the FCC to preempt such entry regulations,” Nebraska officials said in petitioning to have the ruling vacated and an en banc rehearing set. “Indeed, the United States and FCC submitted an amicus brief in this case in support of the NPSC, asserting that the Vonage Preemption Order ‘did not address, let alone preempt, the state-level universal service obligations of interconnected VoIP providers…’, and that the impossibility exception did not preclude the NPSC from placing this requirement on Vonage, as the NPSC’s NUSF Order ‘does not present a conflict with the FCC’s rules or policies.” The Nebraska utility commission’s order that Vonage pay into the state fund “does not conflict with any federal regulatory policy or impair the FCC’s authority to regulate the interstate aspect of interconnected VoIP service,” the state said. “In fact, its action is entirely consistent with the FCC’s imposition of USF contribution requirements on Vonage and other interconnected VoIP providers. The ‘impossibility exception’ relied on in the Decision thus does not apply.” In seeking an en banc rehearing, the state faces “an upstream swim,” said Brad Ramsay, general counsel for the National Association of Regulatory Utility Commissioners. “What’s in Nebraska’s favor is that there’s no question but that the court got it wrong. From a policy, legal and commonsense perspective, the May 1 ruling makes no sense. The question is, will the other judges be willing to act or will they defer to their brother jurists? If the judges really look at this case, they should reverse and rehear.” The May 1 ruling stands to imperil state universal service funds and the federal USF, Ramsay said. “Everything is migrating to VoIP -- not necessarily nomadic, but VoIP nonetheless,” he said. “There are 23 states with universal service funds. If those funds aren’t there, the rates in those states will go up significantly, and there will be a greater burden on the federal fund. This is really bad.” NARUC, which filed an amicus brief on Nebraska’s behalf in the earlier appeal, may weigh in on the en banc request as well, Ramsay said.

An FCC notice of inquiry about universal service high- cost support for non-rural carriers spurred old arguments for a USF overhaul, in comments at the commission last week. But the notice, which asks how the FCC should respond to a 2005 remand by the 10th U.S. Circuit Court of Appeals (CD April 9 p4), may address too narrow an issue to result in comprehensive reform, industry officials said. In 2005, the court called unlawful the FCC’s current non-rural rules, which address carriers like Qwest that serve high-cost areas with too many lines to be considered “rural” by the statutory definition.

Acting on a suggestion by Qwest, Wyoming’s Public Service Commission plans to amend rules on state universal-service funds, the commission said Tuesday. The rewrite of section 500, in chapter 5 of the commission’s procedural rules and special regulations, would create a way for eligible telecommunications carriers to seek state permission to divert federal Universal Service Fund support to specific building projects or equipment upgrades, the commission said. The same change would permit the state to subsidize authorized projects or upgrades by increasing the state USF assessment. Any diversions would need commission approval. Qwest said the change will encourage efforts to improve service, including its own proposed spending to assess service quality in the Lander-Riverton Wind River Indian Reservation area, the commission said. The proposed change would address a situation apparently particular to Wyoming, said Qwest President for Wyoming Mike Ceballos. In other states federal USF funds cover high-cost construction, but Wyoming requires ETCs like Qwest to use such funds as credits on customer bills, he said. Qwest has as many rural customers as independent phone companies in the state do, but independents can use federal USF funds to cover their costs, he noted. “I believe we are unique in Wyoming in applying federal USF money to bill credits,” Ceballos said. “The rule change would allow the Commission to hear proposals to allocate some of that federal money to construction and upgrades.” At the reservation, on which Qwest is the predominant carrier, the company plans to study how best to invest in high-cost areas. Only Alaska is less dense in population than Wyoming, Ceballos noted. His state averages four customers per square mile compared with Alaska’s 3.7, and some Wyoming locales, like the town of Lusk, have one customer per square mile, he said. The commission plans a public hearing on the proposed amendments (Docket Number 90000-102-XO-08) at 9 a.m. May 27 at its headquarters, 2515 Warren Ave., Suite 300, Cheyenne, Wyo. May 18 is the deadline for written comments -- http://psc.state.wy.us under “Hot Topics.”

Rate-of-return carriers should only need to seek recovery of universal service audit costs from the federal government, said state members of the Joint Board on Jurisdictional Separations. In reply comments Tuesday, they backed a petition by the National Telecommunications Cooperative Association (CD April 22 p4) that would assign all federal Universal Service Fund costs to interstate jurisdiction. “The audit costs involved are incurred to assist in the review of the function of the federal USF program and as such should appropriately be assigned to the interstate jurisdiction,” the state members said: “A significant, if not primary, purpose for the audits is to ensure the reasonableness of federal USF surcharges and to detect waste, fraud, and abuse of federal funding.” They rejected comments by Verizon saying costs should remain divided between intrastate and interstate jurisdictions. States may benefit from federal USF subsidies, but “it does not necessarily follow that States benefit from the federal audits,” they said. The “main beneficiaries” are the FCC, interstate ratepayers and the Universal Service Administrative Co., they said. States “have no control over whether federal audits are conducted, the scope of the audits, the audit costs, the selection of the auditor, or the federal universal service disbursement mechanisms that are being audited.”