Universal service subsidies totaled nearly $5.7 billion in 2004, the Federal-State Joint Board said in an annual report issued Thurs. About 61.5% of that went to rural telcos with high costs, 24.8% to schools and libraries, 13.4% for subsidies to low-income consumers and 0.3% to support communications services used by rural health care facilities. Other statistics in the report: (1) Telecom industry revenues were about $228 billion in 2004, down from $231 billion in 2003. (2) Local wireline providers saw $86 billion in revenue, reflecting little change from 2003, while wireless providers’ revenue rose to $96 billion from about $85 billion the year before. Revenue from long distance calling dropped to about $51 billion from $59 billion in 2003. The Joint Board report said interstate toll use declined from 444 billion min. in 2003 to 422 billion min. in 2004. Carriers contribute to the Universal Service Fund (USF) based on a percentage of their interstate long distance revenue -- a method the FCC has proposed changing.
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.
A bill introduced by Sen. DeMint (R-S.C.) that would give the FCC authority to define what constitutes fair competition for consumers is based largely on ideas from the Progress & Freedom Foundation’s project on telecom reform. The bill, which has no co-sponsors, includes a substantial section on universal service fund (USF) reform -- the first major Senate telecom bill to address the matter. The provisions are based on research by experts PFF convened from universities, law firms and research groups (CD Dec 9 p3). DeMint’s bill would require the FCC to adopt within 6 months after enactment a new contribution mechanism based on phone numbers; place a $3.6 billion cap on distribution, in the form of performance-based block grants to states.
An FCC Office of Inspector Gen. (OIG) effort to audit more Universal Service Fund (USF) contracts remains stymied by an auditor shortage, OIG said in a report to Congress for the 6 months ending Sept. 30. OIG has long wanted more auditors, especially for E-Rate projects. “Unfortunately, we have made no additional progress in either obtaining additional staff or completing the 3-way contract with USAC (the Universal Service Administrative Co.)” meant to get auditors from an accounting firm, the OIG said. A staff member was to transfer from the Commission’s Office of Managing Dir., but “personnel actions were frozen shortly after Chairman Martin assumed his position and no action has been taken to complete this transfer.” OIG said the 3-way contract for contractors seemed to have FCC approval but in mid-Aug. the FCC Gen. Counsel’s Office raised concerns about the vendor selection process. The OIG said: “We have been working with USAC since the summer of 2004 to establish a three- way contract under which the OIG and USAC can obtain audit resources to conduct USF audits. In addition to providing access to resources to conduct audits, the three-way agreement was intended to provide access to resources necessary to provide support to criminal investigations of E-Rate and USF fraud. As a result of delays in establishing the three-way agreement, the FCC OIG has struggled to provide adequate investigative support to federal law enforcement.”
Universal Service Fund (USF) reform should be a pillar of telecom reform, FCC Comr. nominee Copps told Senate Commerce Committee Chmn. Stevens (R-Alaska) at his Tues. confirmation hearing. The FCC needs to hear from Congress what “universal service” means, Copps said. He also said the contribution methodology needs repair. Responding to Stevens’ query on Copps’s top priority in updating the ‘96 Telecom Act, he said: “USF is so essential to the future of this country… I think we've got to fix that system.”
A plan to reform the Universal Service Fund (USF) with more state control and a cap on growth got Sen. Sununu’s (R-N.H.) conditional backing at a Wed. forum sponsored by the Progress & Freedom Foundation (PFF), which also proposed the reform package. As it stands, the USF program “significantly distorts the marketplace, undermines innovation and limits services to customers,” Sununu said. PFF’s plan correctly aims to limit growth and increase efficiency, he said: “We've got too many programs that are on auto-pilot.”
Universal service fund (USF) support would be used for broadband deployment, under a discussion draft released Thurs. of a bill by Reps. Terry (R-Neb.) and Boucher (D-Va.). The bill would expand the USF base by requiring payments into the fund by service providers that use telephone numbers or IP addresses or sell network connections. “To change USF, I believe that all who play must pay,” said Terry. He called the draft a vehicle for reform that would remedy “inequities that exist today.” Boucher said he’s seeking comments on the draft by Dec. 23 and plans to introduce a bill next year.
House and Senate conferees agreed Fri. to exempt the universal service fund (USF) from Anti-Deficiency Act accounting rules for a year, and to bar the FCC from limiting USF support to primary lines. Senate Commerce Chmn. Stevens (R-Alaska) brokered the USF deal Thurs. night with House Commerce Chmn. Barton (R-Tex.), who wants to overhaul USF. Stevens thought he had sewn up the arrangement, but learned after the Thurs. conferees’ meeting that the primary-line provision wasn’t in the bill. “I didn’t sleep last night because of this amendment,” he told conferees during Fri.’s meeting, arguing passionately that the primary-line provision is essential in rural areas.
Clearer rules and procedures would go far to improve management of the universal service fund (USF), the FCC was told by a variety of organizations. USF management can be confusing and inefficient for contributors and recipients, according to some comments, but many said the problems don’t stem from the Universal Service Administrative Co. (USAC) the non-profit that administers USF. The agency had sought comments on the entire USF program, including the high-cost fund, E-rate and smaller programs (CD June 15 p8).
Four rural telecom bodies have allied to strengthen their lobbying power as Congress eyes policy changes on issues such as universal service. At a news conference Thurs., members of the Coalition to Keep America Connected said the impending Telecom Act revision spurred creation of the group, made up of the Independent Telephone & Telecom Alliance, NTCA, OPASTCO and the Western Telecom Alliance.
The available support is a “great benefit,” according to more than 90% of Universal Service Fund (USF) Schools & Libraries Program participants, USAC said. Only 6% said their school or library gets “some benefit;” 1% said there is “no benefit,” USAC said. The data were amassed by a USAC program launched in Jan. to learn now to improve USF by visiting and talking with recipients. Participants rely on USF for public safety, better communications between faculty and parents, distance learning, readying students for state-mandated tests and acquiring new technologies, USAC said. “Some school officials also have expressed that without USF support, their schools would not be able to meet the federal requirements of the No Child Left Behind Act,” USAC said.