The telecom industry voiced mixed feelings about an Iowa Telecom request to receive universal service funding through the nonrural program even though it’s a rural company. In comments filed July 3, some said the FCC should approve the request, some said the FCC shouldn’t let Iowa Telecom “game” the system and AT&T said it sympathizes with Iowa Telecom but thinks the FCC should reform the process rather than make a special concession. Iowa Telecom sought the special treatment because the nonrural program is based on forward- looking economic costs (FLEC), rather than the embedded costs used in the rural program. Under FLEC, the company could get Universal Service Fund (USF) support; under the embedded cost standard, it can’t. Iowa Telecom’s former owner invested very little in the network, making Iowa Telecom’s embedded costs so low it can’t get USF support under the rural mechanism, the company told the FCC. In comments filed July 3, Embarq urged that Iowa Telecom’s petition be granted because the company is in an unfair position due partly by outdated universal service rules. “Ten years have passed since the Commission first acknowledged that FLEC was the proper costing approach to be used when calculating explicit federal support” and yet it still calculates rural costs on an embedded cost methodology, Embarq said. The Independent Telephone & Telecom Alliance (ITTA) said “by historical accident… Iowa Telecom appears to be caught in a trap in which its federal and state wholesale and retail pricing mechanisms… do not align with the method by which rural carriers become eligible for high-cost loop support.” ITTA said Iowa Telecom “should not be penalized either for the low inherited book value of its assets or for the more generalized concerns about the application of FLEC to rural carriers.” AT&T agreed Iowa Telecom is in “an untenable position” but said the better route would be for the FCC to act in a pending proceeding aimed at reforming the high cost support mechanisms. “Iowa Telecom’s petition exemplifies the irrationality of the Commission’s existing mechanisms and the need for comprehensive universal service reform,” AT&T said: “Without such support, Iowa Telecom faces the Hobson’s choice of imposing significant rate increases or foregoing network investment necessary to provide advanced services to its customers.” But the National Assn. of State Utility Consumer Advocates (NASUCA) said “no company should be able to game the Universal Service Fund… to maximize its ’take’ under the fund.” Iowa Telecom “is a rural carrier and is limited to the support allowed under the USF for rural carriers.” Sprint Nextel accused Iowa Telecom of trying to gain a “windfall” of “ineligible” USF support. Sprint Nextel said Iowa Telecom already got some relief by gaining forbearance from access charge rules “ostensibly so the Iowa Telecom can fund its infrastructure upgrades.” It’s not necessary for the FCC to grant the company “an additional exemption,” Sprint Nextel said.
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.
CTIA met with Wireline Bureau Chief Tom Navin to recommend how to address the distribution side of Universal Service Fund (USF) reform. CTIA said high-cost support should be based on “one mechanism that calculates support based on the most efficient technology,” though wireless carriers are willing to explore other possibilities, including reverse auctions. CTIA pointed out that while support for wireless carriers has grown significantly wireline support is climbing more rapidly. “From 2000 to 2005, incumbent local exchange carriers accounted for roughly 2/3rds of growth in the size of the high-cost universal service mechanisms,” CTIA said. “In fact, incumbent LECs continue to receive roughly 80% of federal high-cost universal service support, even though there are now more mobile wireless subscribers than wireline switched access lines.”
Senate Commerce Committee negotiations on a hefty manager’s amendment to pending telecom reform legislation were expected to continue “well into the night and tomorrow,” a committee spokesman told us Wed. The committee is scheduled to markup Chmn. Stevens’ (R-Alaska) 3rd draft of the bill today (Thurs.). Some Hill watchers said the marathon meeting could spill into next week. The broad draft contains hot topics like net neutrality and preemption of state wireless regulation (CD June 21 p1), as well as issues like video franchising and Universal Service Fund (USF) reform.
The FCC Wed. placed universal service obligations on VoIP providers, setting a “safe harbor” of 64.9% of interstate revenue for their payments -- a figure based on the percentage of interstate revenue wireline toll providers report. The FCC also raised the wireless safe harbor from 28.5% to 37.1%. As wireless carriers already can, VoIP operators will be able to submit traffic study data to show they should pay less than the safe harbor percentages. FCC officials declined to comment on whether they will impose new rules on how such studies should be done.
House Commerce Committee Chmn. Barton (R-Tex.) took another swipe at the Universal Service Fund (USF), regaling onlookers at a hearing Wed. with examples of questionable use of USF support by seemingly flush rural telecom companies in Tex. A company in Big Bend, Tex., with 6,000 customers got $9.6 million in USF money, posted a 12.8% return on equity and paid $3 million in dividends to shareholders, he said: “It also runs a hunting ranch to entertain rural phone lobbyists.” A Tex. panhandle company got $2.6 million in federal USF money and “paid back more in dividends than it charged customers,” Barton said: A small telecom operating outside Houston gets “huge subsidies” to serve wealthy customers.
With the FCC apparently poised to impose Universal Service Fund (USF) assessments on all voice-over-IP (VoIP) providers this week, cable operators expanding into telephony with IP-based offerings face the unappetizing prospect of having to compete by markedly hiking their rates for those services or cutting into their profit margins.
The 3rd draft of a telecom reform bill from Senate Commerce Committee Chmn. Stevens (R-Alaska) addresses net neutrality but doesn’t assuage critics’ fears that network operators like AT&T and Verizon will be able to discriminate against content providers like Google and Amazon.com, sources told us Sat. It goes further than Stevens’ previous draft, which simply required the FCC to conduct a study on the controversial topic. The new version of S-2686 is expected to become public Mon.
The House video bill’s passage (CD June 9 Special Report) doesn’t presage smooth Senate approval of franchise reform, including Commerce Committee Chmn. Stevens’ (R- Alaska) telco proposal, said industry and Hill sources. They give low odds on 2006 overhaul because between now and the midterm elections there’s little time to pass Stevens’ bill - - still in draft -- and then reconcile the 2 bills. Differences between House and Senate proposals further complicate the path, they said.
At our deadline, the House was expected to endorse a rule allowing a net neutrality amendment to the House video bill (HR-5252), which in turn was set for vote later Thurs. The amendment, by Rep. Markey (D-Mass.), would subject network operators to anti-bias rules and provide for expedited complaint review. It’s among 8 amendments the Rules Committee decided to accept late Wed. after a hearing on about 25 proposed changes to the bill.
The FCC is poised to impose a mandate on VoIP providers that they pay into the Universal Service Fund (USF) and also may raise significantly the “safe harbor” for wireless carriers. FCC Chmn. Martin began to circulate a USF item last week, timed to the June 15 agenda meeting -- likely the first with new Comr. McDowell.