Internet service providers (ISPs) should be immune from Universal Service Fund (USF) contributions because they use, rather than “provide,” telecom services, the Information Technology Assn. of America (ITAA) said in an FCC ex parte filing. That means the FCC doesn’t have the authority to require ISPs to make USF contributions, it said, and “concerns about ’sufficiency’ or ‘competitive neutrality’ do not provide a basis to require” ISP contributions to USF. The ITAA also said the FCC should retain the ILECs’ Computer II unbundling obligations, while eliminating unnecessary regulations. Without Computer II, it said, ILECs could charge ISPs unfairly high prices, resulting in a duopoly of ILEC-affiliated ISPs and cable modems. ILECs remain dominant in provision of wholesale broadband services that ISPs use, ITAA said. The ex parte filing dealt with May 22 meetings with the FCC Wireline Bureau staff.
The Mass. Dept. of Telecom & Energy (DTE) set a June 20 deadline for public comment on whether it had legal authority to establish a state universal service fund. The DTE acted in response to a petition by Richmond Connections that sought creation of a state USF to advance access to affordable telecom services in a competitive marketplace. The DTE (Case 03-45) said it wasn’t sure whether its enabling statutes gave it such authority and asked carriers and the public to comment on whether it legally could implement a formal proposal for a state USF.
The National Telecom Co-op. Assn. (NTCA) urged the Federal-State Joint Board on Universal Service to recommend that all pending eligible telecom carrier (ETC) designation applications before the Commission “be stayed until new portability rules and ETC guidelines are adopted and implemented.” It said the stay would give the Commission time to develop new universal service rules that would “remedy the flaws in the identical support rule” and establish new ETC guidelines that would “strengthen the public interest determination in rural areas, without increasing the size of the universal service fund [USF] through the granting pending ETC designations based on the current inequitable portability rules and insufficient ETC designation procedures.” The NTCA also recommended that the board make its own recommendation, instead of creating an industry task force that would “unduly delay the proceeding and create further uncertainty.” However, Western Wireless said there was a “need” for a competitive universal service task force process, analogous to the Rural Task Force (RTF): “Such a task force would create the possibility of an open discussion of the difficult issues, among open-minded people who certainly will disagree, but at least will listen to one another.” It said a task force also would help “fully inform members of Congress, the Joint Board and the FCC about the underlying facts of the universal service system as well as the optimal means for reform.”
The FCC Inspector Gen.’s Office said it had “numerous concerns” about the e-rate program and the IG’s ability to set up an effective oversight regime. In a report issued Tues., IG Walker Feaster and his office said there hadn’t been enough audits to come to definite conclusions about program improvements but: “The results of audits that have been performed and the allegations under investigation lead us to believe the program may be subject to [an] unacceptably high risk of fraud, waste and abuse through noncompliance and program weaknesses.” As it has in past reports, the IG said it was supporting investigations by law enforcement agencies in malfeasance by service providers and others. The report said law enforcement agencies asked the IG to help with one service provider in particular and on Feb. 3 the IG sent a memo to law enforcement officials that “identified monetary findings in the amount of $584,605 related to missing equipment and overbillings for recurring services.” The report didn’t identify the service provider. The IG said from July 1998 through June 2001 “the service provider received more than $9 million in E-rate funds for goods and services provided to approximately 36 schools.” The IG said it had established “a formal working relationship with the Governmental Fraud Unit of the FBI” and also worked with DoJ’s Antitrust Div. on a variety of cases. Allegations being investigated in those cases include: (1) Procurement irregularities such as lack of competitive bidding. (2) Service providers’ billing for goods and services not provided. (3) Funding of ineligible items. (4) “Misappropriation of assets.” (5) Beneficiaries’ not paying the local portion of the costs, “resulting in inflated cost for goods and services to the program and potential kickback issues.” The IG’s office said it was concerned “with the pace at which identifiable program improvements -- such as enhanced requirements for competitive procurement -- are being addressed.” It said it couldn’t give the FCC assurance that the program was protected from fraud, waste and abuse until there were enough resources and funding to provide better oversight. One of the oversight problems is that the FCC doesn’t have the authority to use USF funds to pay for its cost of administering the fund, including providing oversight, the report said. The IG recommended, among other things, improving management of the e-rate and the overall universal service fund: “Numerous functions, particularly in the area of financial management and oversight, are performed voluntarily by USAC [the Universal Service Administrative Co.] under undocumented, oral agreements… Formalizing certain administrative functions will strengthen the relationship between the Commission and USAC and result in more efficient and effective management of the fund.” In addition, fund management “would benefit from the additional control it would be afforded if it were maintained in an account managed by the Department of the Treasury,” the report said.
Sprint will request a refund of all its USF (universal service fund) contributions related to prepaid cards as far back as Jan. 1998, should the FCC grant AT&T’s petition on prepaid cards, Sprint said in a letter to the Universal Service Administrative Co. (USAC) and the FCC last week. In May, AT&T asked the FCC to classify certain prepaid card services whose users heard an advertisement during the call set-up process as “enhanced” or “information” services because of subscriber interaction with stored information. Sprint said although the petition referred to access charges, a “necessary application” was that revenue from such prepaid cards would be the one from “information services,” rather than from telecom services, and therefore was exempt from USF contributions. However, Sprint argued the revenue from such cards constituted telecom service revenue because “users of these cards buy them to make telephone calls, rather than to listen to advertisements from the card issuer… If the FCC grants the AT&T petition, then it will be clear that Sprint’s view… is erroneous and that Sprint has mistakenly been overstating the amount of its revenues that is subject to USF assessments.” Sprint said USAC “may wish” to gather information from other companies on the way they classify and report revenue from prepaid card services to evaluate the potential impact on future funding of the exclusion or inclusion of such revenue in the contribution base. It cited recent FCC data that in 1999-2002, the number of reporting prepaid card providers more than doubled to 37, while the telecom services revenue reported by such entities declined more than 90% to $72 million. “This startling drop” in telecom services revenue, Sprint said, “suggests that AT&T may not be the only entity that is attempting to characterize prepaid card service as an ‘enhanced’ or ‘information’ service.”
Six House members urged colleagues not to sign on as co- sponsors of a universal service bill by Rep. Terry (R-Neb.) In a May 20 letter to other members, they said HR-1582 (CD April 4 p1) was “well-intended” but would address only one category of universal service -- nonrural high cost -- and “does not address many of the real problems that threaten the USF [Universal Service Fund]. “ The letter was signed by Reps. Baca (D-Cal.), Bachus (R-Ala.), Capito (R-W.Va.), Clyburn (D-S.C.), Cramer (D-Ala.) and Pickering (R-Miss.). House Commerce Committee Chmn. Tauzin (R-La.) has said he doesn’t support the bill either.
Intrastate telephone revenue should be included as a revenue source for the Universal Service Fund, several attendees said of a closed-door USF “summit” in the Senate, according to sources who attended the meeting. The sources said intrastate telephone revenues was one area where there appeared to be general consensus among the nearly 20 participants in the summit, sponsored by Senate Communication Subcommittee Chmn. Burns (R-Mont.) “There seemed to be, at the very least, tepid support for including intrastate revenue,” one source said. An industry source said FCC Comr. Abernathy told the summit that for the Commission to collect intrastate revenue, there would have to be authorizing legislation. There also was discussion on broadening the base of contributors to USF, sources said. Qualifications for eligible telecom carriers also received significant attention. Sources said no senators proposed specific legislation or other specific regulatory relief. Several said the tone of the meeting was very good. The meeting was moderated by Bob Rowe of the Mont. PSC. “Everyone had a fair shake. It was a good listening session,” said Don Erickson, OPASTCO legislative dir. USTA Pres. Walter McCormick said: “These important issues must be addressed in a rapidly comprehensive way that examines them in the context of other independent areas, such as regulatory relief and intercarrier compensation.” There will be a follow-up session in about 3 weeks, sources said, and one source suggested there could be several more meetings. Abernathy, Burns, FCC Comr. Adelstein, and Sens. Stevens (R-Alaska), Dorgan (D-N.D.) and Rockefeller (D- W. Va) attended the summit, along with the industry representatives from BellSouth, NTCA, Verizon, NCTA, CenturyTel, Western Wireless, AT&T, Qwest, USTA, E- Copernicus.com, TracFone, OPASTCO, Sprint, MITS, SBC, and the Wireless Independent Group.
The Kan. Corporation Commission (KCC) opened a docket to review its procedures for reporting and recording state universal service fund revenue. All carriers are required to contribute to the plan and must report annually on how much of their contributions have been recovered from customers. The new investigation responds to KCC staff concerns that some carriers with monthly flat-rate calling plans weren’t reporting contribution recovery on a consistent basis. Consumer groups also had raised a question of whether customers were being burdened by overstated fund assessments. The staff also wants repeal of the current USF contribution exemption given to one-way paging services. Intervenors in the proceeding (Case 03-GIMT-932-GIT) must register by May 23. Comments are due July 2 and replies July 29.
Senate Communications Subcommittee Chmn. Burns (R-Mont.) said Tues. that Congress would further examine the Universal Service Fund (USF) through a “summit.” He said officials of the FCC, the Federal-State Joint Board on USF, industry and members of Congress would meet in an effort to find solutions to problems encroaching on USF. The event hasn’t yet been scheduled. Burns first proposed the idea of a summit at an April Senate Communications Subcommittee hearing (CD April 3 p1).
Cable operators’ assertion that prices are rising because of programming costs was challenged by some senators in a Commerce Committee hearing Tues. on cable rates and media ownership. In particular, Senate Appropriations Chmn. Stevens (R-Alaska) had tough questions for cable operators and said he doubted that programming costs were driving up cable rates. Senate Commerce Committee Chmn. McCain (R- Ariz.) asked why a la carte pricing or tiering of cable channels wasn’t a common option for consumers.