Federal Universal Service Fund

The Universal Service Administrative Corp. (USAC), which administers the $2.25 billion federal E-rate program, acknowledged at a Senate Commerce Committee hearing Tues. it had lost $4.6 million as a result of an accounting change requiring the corporation to have cash on hand to meet commitment letters. The change forced USAC to sell off high interest Treasury bills (T-bills) and other assets, paying significant penalties.

Many industry and Hill sources said an amendment to the Senate Commerce Justice State (CJS) appropriations bill that would prevent the FCC from adopting a primary line restriction on the Universal Service Fund (USF) (CD Sept 16 p1) is still a long shot. But while they acknowledged Thurs. the bill still had a long road to travel, it was certainly possible it could pass.

The Senate Appropriations Committee voted Wed. to prevent the FCC from imposing a primary-line restriction on Universal Service Fund (USF) support. With no discussion or objection, the amendment to the Senate Appropriations Commerce Justice State bill will forbid the FCC from expending any funds for a USF system in which funds could be distributed only for “primary lines.” The amendment was pushed by Senate Communications Subcommittee Chmn. Burns (R-Mont.) and supported by Sens. Dorgan (D- N.D.), Stevens (R-Alaska), Hollings (D-S.C.), Gregg (R- N.H.), Brownback (R-Kan.), and Durbin (D-Ill.), sources said. Burns said the joint board proposal would hurt Mont.’s economy, which depends on small business. “In short, if the FCC moves forward with this potentially devastating recommendation, rural America would have a harsh winter of economic isolation,” Burns said.

One of the few surprises at Wed.’s FCC mostly well scripted meeting was a strong statement from Comr. Copps warning that the FCC is still falling short on homeland security. Shortly after the session’s start, Copps -- responding to an FCC report on post-Sept. 11 communications changes that led off a meeting largely focused on homeland security -- addressed at length Commission shortcomings. Sources involved with emergency communications said Thurs. that issues remain, echoing in part Copps’ statements. Copps, sources said, delivered what he viewed as a moderate speech.

SBC said in a July 30 letter to the FCC that AT&T’s exclusive contract with the Defense Dept. (DoD) should be examined. AT&T has petitioned the FCC to have its long distance calling card be classified as an information service rather than a telecom service, which would prevent the carrier from meeting universal service fund and access charges requirements (CD July 26 p1). SBC said AT&T was engaged in “unethical and illegal acts” because it wasn’t collecting the charges on the cards, which are used by military personnel, including in Iraq and Afghanistan. “DoD should hold AT&T to the terms of its procurement contract and/or launch an investigation into whether the representations AT&T made in bidding on that contract, or AT&T’s performance under the contract, violate federal laws and regulations.” SBC said DoD would set a “dangerous precedent” if it gave the contract to suppliers that offer lower prices by violating the law. SBC said AT&T’s threat to raise rates would mask dodging of USF payments. SBC said: “Providers that play by the rules likely will seek a refund of their USF payments or copy AT&T’s charade.” AT&T has said that since the service includes a prerecorded advertisement, it’s an informational service. SBC disagreed. The letter was signed by Paul Mancini, SBC senior vp-asst. gen. counsel.

Wireline and wireless carriers alike opposed reseller TracFone Wireless’s request for universal service funding in N.Y., saying it would add pressure on the Universal Service Fund (USF) without benefits. But public interest groups said the entry of TracFone, which offers prepaid service, would help low-income consumers. TracFone had asked the FCC to give it eligible telecommunications carrier (ETC) status, needed to receive USF support, and to forbear from rules that require a carrier to have facilities of its own to receive that USF support.

States might have to begin thinking about replacing revenue from telecom services with another revenue stream, perhaps the streamlined sales tax, House Judiciary Commercial & Administrative Law Subcommittee Chmn. Cannon (R-Utah) suggested Fri. During Fri.’s hearing on VoIP regulation, Cannon asked many questions about state taxation of VoIP specifically and telecom and Internet taxation generally. In a broad discussion that also touched on the Internet tax moratorium and wireline access regulations, Cannon said VoIP will likely reduce state revenue, even if states get authority to tax it.

The Senate Commerce Committee approved several pieces of legislation Thurs. -- including VoIP, satellite home viewer improvement act (SHVIA), low power FM radio, junk fax and reauthorization of the Corp. for Public Bcstg. (CPB) -- but fighting over an FTC nominee brought an abrupt end to the markup, which could have prevented some amendments from being introduced. Sen. Wyden (D-Ore.) infuriated Committee Chmn. McCain (R-Ariz.) by invoking the “2-hour rule” which prevents committee meetings from lasting more than 2 hours when the Senate is in session. Wyden was battling McCain on procedures concerning Deborah Majoras, the nominee for FTC Chmn. Wyden opposed the nomination over disagreements with FTC action on gasoline prices. Sources said potential amendments to junk fax and CPB legislation couldn’t be offered after Wyden’s procedural move. The Committee had approved the 2 bills under unanimous consent with the understanding they could be amended later in the markup.

Congress faces a choice between acting quickly to preempt states from regulating VoIP or taking more time to tackle the Internet service in a broader rewrite of the Telecom Act, House Telecom Subcommittee members said Wed. At a hearing on VoIP, industry witnesses disagreed. The preference seemed to be what some committee members considered impossible: A more comprehensive Telecom Act rewrite done quickly. House Commerce Subcommittee on Commerce Chmn. Stearns (R-Fla.) told us after the hearing, however, that the debate is more complicated than that. “Some of them [Commerce Committee members] don’t want to do anything at all,” he said. Full Committee Chmn. Barton (R- Tex.) didn’t take a position on the best approach, but he did predict “VoIP is going to be huge. I think it’s going to make cell phone expansion look like wagon trains.” Barton told the witnesses Congress will preempt states on VoIP regulation: “There should be only one, federal set of rules that apply to VoIP.”

House Commerce Committee ranking Democrat Dingell (Mich.) urged the FCC to reject “immediately” an AT&T petition asking that its enhanced prepaid calling card services be classified as interstate information services. In a letter to FCC Chmn. Powell last week, he expressed concern that “until the Commission acts, AT&T will continue its apparent practice of improperly withholding payments it should be paying into the Universal Service Fund (USF), as well as withholding appropriate payments of intrastate access charges.” In a petition filed more than a year ago, AT&T asked the Commission to rule that its “enhanced” prepaid calling card services were “interstate communications subject to interstate, rather than intrastate, access charges.” It also argued that services were information, rather than telecom services, because calling card users heard recorded ads when placing calls. Dingell called the claims absurd and said he was “troubled by the implications of the relief AT&T seeks.” He said ruling in AT&T’s favor would “upset the present balance which permits lower consumer phone rates,” because the company sought to “avoid its obligation to pay lawful intrastate access charges… on calls in which the calling and called parties are located within the same state.” He also urged the Commission to reject AT&T’s claims that its prepaid calling card services were information services, saying that granting such claims would “only free AT&T of any obligation to contribute to the USF in connection with these services” and create an “enormous loophole for other carriers to avoid supporting universal service.” Consumer Federation of America (CFA) Research Dir. Mark Cooper said in an interview CFA was “concerned” about AT&T trying to avoid paying access charges and USF contributions. “The FCC should make sure that everybody who benefits from the public switched network should make fair contributions to recover costs” of maintaining it, he said.