Federal Universal Service Fund

Senate Appropriators have agreed to add language to appropriation legislation that would forbid the FCC from adopting a primary-line restriction for the universal service fund, a Senate source told us. The language in the Commerce Justice State portion of the Omnibus Appropriations Bill would prevent the FCC from spending any money to enact a primary-line restriction. The FCC’s Joint Federal-State board on USF reform recommended earlier this year that the FCC give USF funding only to the primary line that delivers service to consumers. The recommendation is strongly opposed by rural groups. Several sources said this week that it was very likely that the amendment would be included in appropriations language.

NASHVILLE -- Federal regulators should reform intercarrier compensation and universal service subsidy eligibility standards if they want to make real progress on fundamental reform of the universal service high-cost support system, telecom interests told the Federal-State Universal Service Joint Board.

Several important communications-related items could pass Congress this week as it returns for a brief lame- duck session, industry and congressional sources said. The loudest buzz is on the universal service fund (USF) and the controversy over the FCC’s change in accounting mechanisms that could slow some E-rate payments and possibly lead to a rise in contributions, and several sources expected some efforts to push a legislative solution.

More groups are urging Congress to pass legislation that would exempt the universal service fund (USF) and E- rate programs from Anti-Deficiency Act (ADA) account requirements. Several groups joined NTCA -- which sent letters Mon. -- in sending letters to the Hill urging a legislative fix in the lame-duck session scheduled to start Nov. 16. By applying the ADA rules to USF, the FCC forced the Universal Service Administrative Company (USAC) to withhold millions in E-rate funds until cash flow issues can be corrected. These groups also said the accounting change could affect USF programs and force USAC to raise USF contribution levels. NARUC told Senate Commerce Committee Chmn. McCain (R-Ariz.) that USAC already has been forced to hold $460 million in E-rate funding. “It is our strong view that applying the accounting standards contained in these acts does nothing to stabilize the fund or promote the goals of universal service, and in fact jeopardizes the stability of the fund,” NARUC said. These groups urged action before the congressional session’s end. NARUC also said USF should also be exempted from the Miscellaneous Receipts Act, even though the Office of Management & Budget ruled that the Act’s not applicable to USF. NARUC noted that the Federal Highway Fund and Fish & Wildlife Service were also exempt from ADA. Joining NTCA and NARUC were OPASTCO, the Independent Telephone & Telecom Alliance, the Rural Telecom Group and the Western Telecom Alliance.

Vonage’s DigitalVoice VoIP service is interstate so it can’t be regulated by state PUCs, the FCC ruled Tues. The ruling, which asserts federal jurisdiction over Vonage-like services, came in response to a preemption petition filed last year by Vonage. Although referring to Vonage service, the decision applies to other types of IP- enabled services, the Commission said.

An accounting change that resulted in loss of money in the Universal Service Fund (USF) (CD Nov 1 p1) could bankrupt some rural telephone companies, NTCA said in a Nov. 3 letter urging key members of Congress to take legislative action to solve the problem. “The entire portfolio of federal programs supported by the… USF, including its premiere high-cost program, is facing a politically perilous situation as a result of a recent accounting modification mandated by the… FCC,” NTCA CEO Michael Brunner wrote. Subjecting the high-cost and related low-income programs to the Anti-Deficiency Act (ADA) would “either skyrocket the contribution factor to 25% or more, or… rural telephone companies could be bankrupted should support payments be withheld in order to avoid such an escalation,” the letter said. The letter was sent to House and Senate leadership as well as the chmn. and ranking minority member of Commerce and Appropriations committees in both houses. NTCA followed up with a letter Fri. to FCC Chmn. Powell, urging the agency’s support for Hill efforts. NTCA told Powell it was in discussions with members of Congress about a solution “but your leadership is critical.” NTCA said in a news release that it has been working “with a broad coalition of private as well as public interests as this situation unfolds in an effort to prevent any harm to the high-cost program.” Required changes in the accounting practices of the Universal Service Administrative Co. (USAC) have resulted in a loss of money and disrupted USAC’s procedures for funding schools, libraries and possibly rural telephone companies. Recipients of universal service funding are particularly concerned about an ADA requirement that USAC can’t make “commitments” to provide funding unless the funds are in hand, which appears to conflict with the way some USF funds are provided. Recipients say the changes could result in higher contribution costs by carriers, which would be passed onto consumers, or serious disruptions to universal service programs. Spearheaded by outside members of USAC’s board, organizations such as NTCA are seeking legislation to exempt USAC from the ADA. Brunner’s letter said Sens. Snowe (R-Me.) and Rockefeller (D-W.Va.) “are engaged in discussions with the FCC chairman and others to develop a legislative solution to this dilemma.” Meanwhile, the USAC has issued its projected “demand” figures for first quarter 2005, which the FCC will use to determine a contribution percentage “factor” in Dec. Based on the USAC filing, a number of parties are estimating the factor could raise to around 12.74% from the current 8.9% due to the accounting changes. Legg Mason said in a report Fri. that it thinks “Congress will be very interested in a permanent legislative fix, possibly during this month’s lame-duck session.” The goal is a rider to the appropriations bill, but it’s possible Congress will settle for a continuing resolution and not pass the appropriations bill this year, the analysts said.

The Universal Service Administrative Co.’s (USAC’s) outside board members are trying to get a legislative fix to solve an accounting problem (CD Oct 6 p1) that caused the $6.5 billion universal service program to lose money and jeopardized not only to the E-rate program but also high-cost rural telephony support. Although USAC can’t lobby Congress, its board has been meeting with state regulators, telecom industry associations, education groups and others to seek help in gaining legislation during the lame-duck session of Congress beginning Nov. 15. “The USAC board is reaching out to constituents, talking to people about a solution, trying to do as much as we can,” said USAC Chmn. Frank Gumper, a Verizon consultant: “We've got to do something to get the situation under control, to get the program back to normal.”

LAS VEGAS -- Whether VoIP’s success is due to “regulatory arbitrage” or “superior technology” remains a key question, according to state PUC commissioners speaking Tues. at the USTA convention here. Commissioners said improper regulation could increase regulatory arbitrage. Meanwhile, other speakers predicted state retail rate regulation would largely fade out by decade’s end.

The Federal-State Joint Board on universal service released its most recent monitoring report, which reflects information filed with the FCC through May 2004. The report said the universal service fund (USF) distributed 61.1% for high-cost support, 25.1% for schools and libraries, 13.4% for low-income support and 0.4% for rural health care support. Total industry revenue for telecom services provided to end users in 2003 rose to $234 billion from $232 billion in 2002. Low-income support increased to $716 million in 2003, up from $676 million. High-cost support increased to $3.3 billion from $2.9 billion in 2002.

FCC Chmn. Powell said Wed. the Commission acted properly in ordering the Universal Service Administrative Corp. (USAC) to change how it accounts for money in the federal E-rate program fund, the subject of a Senate Commerce Committee hearing yesterday. The issue has gotten considerable national attention in recent days, including coverage in the N.Y. Times and across the country. But the FCC’s 2 Democrats sharply criticized Powell over the way the Commission handled the issue.