Cox, which for 6 years has advocated the benefits of circuit-switched telephony, introduced voice-over-Internet protocol (VoIP) in the Roanoke, Va., area, where it will go head-to-head with Verizon. But unlike many cable players that in recent days have announced VoIP as their first voice offerings, Cox sees its long-term strategy as more of a hybrid, with the circuit switches serving as a backbone for a national architecture and VoIP deployment in smaller markets where its relatively low startup costs make it the more attractive option.
The regulatory treatment of voice-over-Internet protocol (VoIP) shouldn’t be “detrimental to the underlying network,” OPASTCO said in a statement it submitted Mon. for the record to the FCC’s VoIP Forum Dec. 1 (CD Dec 2 p1). “Disparate regulatory treatment that favors one method of providing voice service over another not only violates the principles of technological and competitive neutrality, it can place at risk the reliability of carriers’ underlying networks,” it said. OPASTCO expressed concern that although “at some point” most VoIP service providers “avail themselves of the highly reliable public switched telephone network (PSTN) to originate, transport or complete voice calls,” they “offer little or no financial support for the growth and upkeep costs of the PSTN.” It said long-term “favorable” regulatory treatment of VoIP service providers would “undermine the reliability of the nation’s ubiquitous telecommunications network.” It also expressed concern about the future of the Universal Service Fund (USF), saying if VoIP providers were exempted from contributing to the USF, “customers of other providers will have to pay more in order to sustain the integrity of the Fund. This places the Fund’s future viability at risk, and runs counter to Section 254(b)(5) of the 1996 Act, which calls for ’specific, predictable and sufficient’ mechanisms to preserve and advance universal service.” OPASTCO argued that the adoption of VoIP technology shouldn’t absolve any service provider of the obligation to compensate LECs adequately for access to the local loop. It criticized VoIP providers’ refusal to pay access charges, saying the VoIP technology did “not reduce the costs incurred by small carriers when they provide access services for these calls.” It said that although VoIP providers claimed to compensate LECs for access costs through the rates they paid as end users, such rates were “not designed to recover LECs’ costs of providing access.” OPASTCO said since many members obtained more than 60% of their operating revenue from access charges and universal service support mechanisms, “without adequate cost recovery from these revenue sources, the ability of small LECs to continue providing basic services at affordable rates would be seriously compromised” and would inhibit them from investing in the network upgrades necessary to provide advanced services. OPASTCO urged the Commission to “adhere to the principles of competitive and technological neutrality in order to avoid government policy, rather than consumer choices, determine the winners and losers in the marketplace. Clearly, services that provide direct substitutes for each other should not be subject to different regulatory classification.”
UBS began coverage of the rural LEC sector Fri., adding CenturyTel with a Neutral 1 rating, Citizens Communications with Neutral 3 and Commonwealth Telephone with Reduce 2. In a research report, analysts said: “RLECs are entering a period of increased regulatory uncertainty as access charge and Universal Service Fund reform move to the fore. While we do not expect a resolution of these issues until late 2004 at the earliest, the process itself and the likelihood of a negative outcome should increase volatility in RLEC shares.” The report said there were positives in the rural area such as: (1) Strong free cash flow that would drive debt reduction. (2) Less competition. (3) Greater margin stability. However, there also were investment concerns such as: (1) “RLECs are acquisitive operators” with additional access line purchases likely. “Although most of the operators are well versed in merging acquired operations, integration, regulatory and financing risk remains high.” (2) RLECs generated 40-50% of their total revenue from network access fees paid by long distance carriers. That offers greater stability in revenue and profits but creates risk as the FCC begins to more closely examine the USF and intercarrier compensation regimes. (3) Competition will grow, with wireless substitution already making an impact on long distance usage.
The FCC Inspector Gen.’s Office said more than $1.9 million in “inappropriate” e-rate disbursements had been recovered as the result of investigations of the first 3 years of the program, which began in 1998. The audits, which have been going on for several years (CD June 4 p8), are conducted by accounting firms contracted by the Universal Service Administrative Co. (USAC). In the latest report, Inspector Gen. Walker Feaster said USAC had initiated action to recover more than $2.3 million more and planned soon to issue “recovery letters” for another $6.98 million. The e- rate program, which offers schools and libraries discounts for projects to upgrade their computer infrastructure, has been criticized for not having strict enough controls over the contractors doing the work and their prices. Repeating concerns expressed earlier about lack of funding, the report concluded that “until such time as resources and funding are available to provide adequate oversight for the USF [Universal Service Fund] program, we are unable to give the Chairman, Congress and the public an appropriate level of assurance that the program is protected from fraud, waste and abuse.” In other areas, audits still continuing at the time of the semiannual report included one on financial management of auction proceeds. “This audit is being conducted to evaluate any potential duplicative efforts in the operation and management of the auction’s process,” the report said. Language in the House version of omnibus appropriations legislation would limit the FCC to $85 million of auction revenue to fund the program, rather than the current practice of funding the administrative costs of spectrum auctions from the money raised in the auctions.
More than 10 voice over Internet protocol (VoIP) providers led by the Voice on the Net (VON) Coalition are getting together to create an unprecedented group to encourage a public policy that refrains from applying traditional telecom regulation to Internet voice communications. The ad hoc coalition, expected to be announced formally before the end of the year, will try to form voluntary agreements on some key common carrier obligations, such as universal service, E911, disability access and law enforcement monitoring of VoIP calls. “These legitimate concerns can be addressed without imposing heavy regulation on VoIP and… if they are addressed successfully the political pressure to regulate VoIP will dissipate,” said VON Coalition Chmn. Tom Evslin, who represents the ad hoc group.
The omnibus appropriations bill (HR-2673), expected to clear the House today (Mon.) (see separate story, this issue), would require the FCC to fund any audit of the Universal Service Fund (USF) E-rate program. The conference report on the bill adopts language from the Senate Commerce Justice State (CJS) appropriations bill (S-1585) conference report that prevents appropriations to the FCC be used to audit E-rate. Instead, Congressional appropriators said the money should be taken from the USF. Currently, the FCC Inspector General (IG) is prohibited from using USF money to fund audits through his office. FCC IG Walker Feaster said the result of the bill would likely require the FCC to hire independent auditors to evaluate the E-rate program. The report language showed that the FCC had asked for $3 million to review the E-rate program. The program, which funds telephony and Internet access for schools and libraries, has been under fire from Congressional members. House Commerce Committee Chmn. Tauzin (R-La.) has raised concern about fraud in the $2.2 billion E-rate program. Last week, Tauzin asked the General Accounting Office to examine the policies of the E-rate program (CD Dec 3 p5). That review is in addition to the investigation being conducted by the House Commerce Oversight Subcommittee.
FCC Comr. Adelstein reiterated Thurs. his concern about the pressures on the Universal Service Fund (USF) caused by the growth of competitors seeking support from it, and recommended a new process that could place limits on competitive use of USF support. Speaking at a telecom conference sponsored by FCBA and the Practising Law Institute, Adelstein said the Telecom Act intended multiple carriers to be eligible for support or it wouldn’t have created the eligible telecom carrier (ETC) process for additional carriers to gain funding. However, he said he wondered whether Congress had anticipated the size of the demand that was emerging. “It may come to a choice of financing competition or financing network development in rural areas,” he said.
FCC Chmn. Powell gave early indications of his thinking about a regulatory regime for Voice-over-Internet Protocol (VoIP) Mon., saying he saw consensus that the service might be deemed “interstate” in nature and that concerns about VoIP were focused on 4 or 5 discrete issues. His comments to reporters came after an FCC forum on VoIP that featured industry leaders, state public utility commissioners and others.
Legislation to modify the universal service fund (USF) received Native American endorsements. The National Indian Telecom Institute (NITI) and the National Congress of American Indians (NCAI), expressed support for S-1380 in separate letters to Senate Commerce Committee Chmn. McCain (R-Ariz.). S-1380, introduced by Sen. Smith (R-Ore.), would adjust distribution of USF payments to Bells and other large ILECs for rural services. The pot of about $230 million, called the “non-rural” fund because it goes to bigger carriers, is calculated statewide and goes mostly to Ala., Miss. and W. Va. “The FCC’s statewide averaging approach excludes more than 40 states and most tribal lands from eligibility for high-cost support,” NITI said. S-1380, and its House counterpart (HR-1582) from Rep. Terry (R-Neb.), would calculate based on the wire center. “This represents a more equitable approach given that one wire center typically covers a more homogeneous service area and reflects service costs more accurately,” the NITI letter said. NCAI said the legislation was needed, as many Native American communities don’t even have basic telecom services. “In recent years, numerous experts have reported that Native Americans face an urgent situation in which their telecommunications infrastructure is falling far behind the rest of the Unites States,” NCAI said. The bill has 22 co-sponsors, including McCain, but hasn’t been scheduled for hearing or markup. While urging its passage, NITI said it had concerns: (1) A cap on funding to any one state could result in “truly needy wire centers” from receiving funding. (2) The value of phone exchanges could rise as a result of USF funding changes, making it more difficult for tribes to purchase the exchanges in their areas. “This possible side effect does not outweigh the arguments in favor of the bill, as most tribes will be better served by greater service investments by incumbents than by attempting to take over service themselves,” the NITI letter said. “However, for tribes that have determined that purchase of the local exchange is the only way to ensure adequate service to its people, this effect must be considered.”
Rep. Terry (R-Neb.) endorsed FCC rules to improve a universal service fund (USF) program for rural health care providers (CD Nov 14 p7). The program provides discounted telecom services at rates equal to those in urban areas. “This will go a long way to provide quality health care to those who may not have direct access to it,” said Terry, who has introduced legislation (HR-1582) that would reform USF to allow more large ILECs to receive USF funding in Western states.