Federal court decision last week on ILEC access charges has ramifications for other proceedings such as FCC’s attempts to overhaul access charge and universal service regimes for rural telcos, industry observers said Mon. Fifth U.S. Appeals Court, New Orleans, ruled May 3 that ILECs couldn’t recover their Universal Service Fund (USF) contributions through access charges levied on long distance companies. Court, which remanded FCC regulations for 2nd time on this issue, said such action constituted implicit subsidy, which is barred by Telecom Act. At issue are contributions that all carriers must make to USF. Long distance companies, for example, recover those contributions directly from their customers. FCC in 1997 ordered ILECs to recover their costs from long distance companies as part of access charges. Fifth Circuit remanded that rule in 1999 because of implicit subsidy problem. Commission rewrote rule and said ILECs no longer were required to recover costs from access charges but were permitted to do so if they wished. FCC said it interpreted court’s decision to mean it couldn’t require contributions through access charges but instead had to give ILECs choice of how they recovered contributions. In latest ruling, court said FCC interpretation was wrong. It said ILECs couldn’t recover universal service contributions from access charges, period: “The distinction the agency draws between ‘require’ and ‘permit’ is one without a difference.” Court said its original ruling “turned on the recovery method per se, not whether the Commission permitted or mandated it.” AT&T Vp Joel Lubin said he was cheered by strong language court used in defining access charge recovery as implicit subsidy. Lubin said court’s ruling could affect decision FCC is expected to make Thurs. on rural universal service. At very least, proposals under study by FCC, such as one proposed by Multi-Assn. Group, should be revised to eliminate implicit USF subsidies in access charges, he said. AT&T and several other carriers proposed such action to FCC last month, Lubin said, so court’s ruling was pleasant coincidence. Appeals Court ruling doesn’t have as much effect on large price-cap-regulated ILECs because FCC directed them last year to stop recovering USF contributions through access charges. Action was taken as part of Commission’s adoption of CALLS proposal. Lubin said court’s strong statements barring implicit subsidies in access charges applied to other industry practices as well. Among them, he said, is practice of pooling carrier common line (CCL) charges for rural carriers. Because National Exchange Carrier Assn. (NECA) pools those charges, by nature they are not cost-based, he said. Pooling access charges discourages competition, he said. Competitors such as Western Wireless can’t share in that subsidy because it’s “buried in the pool,” he said. Judge Emilio Garza wrote decision. Also on panel were Judges Eugene Davis and Donald Pogue. Pogue concurred because he disagreed with 1999 decision, saying it might have gone too far
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.