A federal telecom regulator and state PUC representatives clashed over whether a separate regulatory regime should be created for VoIP. In an audio conference Thurs. sponsored by Communications Daily parent company Warren Communications News, Jeffrey Carlisle of the FCC VoIP working group said a minimum regulatory environment for the service wouldn’t necessarily amount to separate treatment for VoIP, which NARUC Gen. Counsel Brad Ramsay said might be illegal. Ramsay had questioned whether VoIP operators should get lighter regulatory treatment than CLECs. Peter Pitsch, of Intel and pres. of the Voice On the Net (VON) Coalition,, said regulation of VoIP could be light if regulators resolved other issues such as access charges and universal service (USF.)
Neb. no longer may be shut out of the Universal Service Fund’s nonrural support fund, but Rep. Terry (R-Neb.) said he would continue to push for legislation that would change the FCC’s formula for distributing USF money to large ILECs delivering service to rural areas. Late last month, the FCC made slight changes in the distribution formula that resulted in more states’ getting funding (CD Dec 30 p6). The nonrural fund, which distributes $235 million to ILECs serving rural customers, has been criticized on Capitol Hill because only 8 states had been getting funding under the FCC’s statewide formula. The recent changes will increase that number to 10, as Neb. and S.D. will get money. Several of the 8 states get more funding under the new system, with Miss. adding $11 million to total $131.2 million and Ky. rising more than $3 million to $23.9 million. W.Va. lost $6 million and Me. lost $3.5 million under the new formula. Neb. will get about $8 million. “I'm encouraged that the FCC found a way to help Nebraska,” Terry said, but “the system is still horribly broken. This will not deter me from moving forward with my legislation to fix the USF system for other rural states. We've still got a long way to go to fix this problem.” Terry said the system was “ridiculous, arbitrary.” He has introduced a bill (HR-1582) that would change the FCC’s system to one that evaluated costs based on wire centers rather than statewide averages, which Terry said would distribute the funds more evenly. The bill is stalled as House Commerce Committee Chmn. Tauzin (R-La.) has said he prefers a comprehensive solution to fixing USF instead of a piecemeal approach. The bill has 71 co-sponsors. Sen. Smith (R-Ore.) also has introduced a similar bill (S-1380), which has 25 co-sponsors, including Senate Commerce Committee Chmn. McCain (R-Ariz.)
Western Wireless and NTCA officials, on opposite sides of many issues on the Universal Service Fund’s future, said Fri. they shared opposition to recommendation of a primary line restriction by the Federal-State Joint Board on Universal Service. Of the issues before the Joint Board, “the specter of primary line restriction is probably most troubling,” Mark Rubin, Western Wireless dir.-federal govt. affairs, told an FCBA lunch.
Rural telecom companies are uniquely positioned to provide wireless services in the vast majority of rural areas, parties said in comments filed with the FCC. They urged the Commission to adopt rules and policies that would provide opportunities for rural telephone companies and eliminate outmoded barriers to deployment of wireless broadband service. The comments came in response to a rulemaking the Commission began in Sept. (CD Sept 11 p6) asking how to promote spectrum-based services in rural areas.
The 9 Democratic candidates for President seldom, if ever, mentioned the term “UNE-P” on the campaign trail, nor are local phone competition issues addressed. While telecom policy isn’t a central issue in the candidates’ stump speech, universal broadband frequently is championed. Former Vt. Gov. Howard Dean (D) also sparked a great deal of attention with recent comments suggesting a need for telecom “re- regulation.” Retired U.S. Army Gen. Wesley Clark has vowed to eliminate NTIA and fold its essential operations into the Commerce Dept.’s Technology Administration.
Several senators wrote to the Federal-State Joint Board on Universal Service leadership to argue against a primary line restriction for the universal service fund (USF). In a Dec. 18 letter to FCC Comr. Abernathy, joint board federal chmn., and Alaska Regulatory Comr. Nanette Thompson, state chmn., the senators argued that limiting USF to the primary line would deny rural consumers equal access to telecom services. The letter was signed by Senate Communications Subcommittee Chmn. Burns (R-Mont.), Senate Minority Leader Daschle (D-S.D.) and Sens. Dorgan (D-N.D.), Johnson (D-S.D.), Baucus (D-Mont.), Snowe (R-Me.), and Lincoln (D-Ark.). It said a primary line restriction would force rural customers to pay “exorbitant rates” for 2nd phone lines or wireless service. It said the Joint Board was considering imposing the primary line restriction, but hadn’t made any formal recommendations at this point. “Rural consumers want and need affordable multiple connections -- often from multiple providers -- just as much as consumers in urban areas,” the letter said. “The fact is that there is nothing reasonable or comparable about denying rural people access to 2nd lines or cellphones.” A primary line restriction would limit rural carriers’ ability to service debt on facilities approved by regulators and built, the senators wrote. They said small business could be badly hurt, since many needed more than one line. “We understand your concerns about the size of the program, but disagree with the need to take this drastic step of limiting support to a primary line,” the letter said.
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.