Several telecom companies and associations wrote to House and Senate Commerce Committee members urging a comprehensive approach to universal service fund (USF) reform. The letter specifically targeted USF legislation that would alter distribution of a narrow slice of USF distributions. The letter said the bills (HR-1582 by Rep. Terry (R-Neb.) and S-1380 by Sen. Smith (R-Ore.)) were “too divisive and narrow in their scope.” The legislation would change the distribution equation for a $234 million fund that goes to RBOCs and midsized carriers that serve rural and poor areas. Under the current distribution, Miss. gets more than half of the funds and only 7 other states receive any. The bill is supported by Qwest, which would receive increased funding under the proposed distribution method, and opposed by BellSouth, which probably would lose funding. The letter was signed by USTA, BellSouth and several smaller telecom firms.
The most important part of the FCC decision issued Mon. on what services are eligible for universal service support (CD July 15 p1) is what the Commission chose not to do, observers said, as did the Commissioners themselves in separate statements issued as part of the order. The FCC voted to defer action on whether “equal access” should be on the list of eligible services. Placing it on the list would have required competitors, such as those that provide wireless service in rural areas, to offer equal access service before they could be eligible for universal service, a move they opposed but rural ILECs supported.
The FCC adopted the recommendation of the Federal-State Joint Board on Universal Service to retain the existing list of services supported by federal universal service funds. In an order issued late Mon., the agency made no decision on whether equal access should be added to the list of services. The Joint Board also was unable to reach agreement on the issue, which is very important to rural ILECs. “We agree with the Joint Board that, with the possible exception of equal access,” no new service satisfies the statutory criteria… or should be added to the list of core services,” the FCC said.
The universal service bill (S-1380) by Sen. Smith (R- Ore.) picked up an influential co-sponsor Thurs. evening when Senate Commerce Committee Chmn. McCain (R-Ariz.) signed on. His support increases the bill’s co-sponsors to 11, with Committee members Allen (R-Va.) and Fitzgerald (R-Ill.) also supporting the measure that would change the formula used to distribute universal service funding (USF). It would distribute a $254 million portion of USF funding to RBOCs in more states, including many in Qwest territory (CD July 10 p6), and is similar to HR-1582 by Rep. Terry (R-Neb.). Qwest serves Ariz.
Sen. Smith (R-Ore.) introduced a universal service fund (USF) reform bill similar to one by Rep. Terry (R-Neb.) (HR- 1582). Sources said that Smith’s USF bill, while similar, wasn’t identical to Terry’s, which is designed to spread more evenly USF funding for RBOCs and midsized carriers that serve rural areas (CD April 4 p1). The formula used to distribute the $254 million spreads money to just 7 states, critics said, with more than half going to Miss. A spokesman for Terry said the formula took statewide averages, so states with both urban and rural areas often couldn’t receive USF funding for rural areas. The bill is pushed by Qwest and opposed by both USTA and BellSouth. “Senator Smith’s bill does not address the overarching challenges threatening universal telephone service,” USTA Pres. Walter McCormick said: “This approach picks winners and losers and pits state against state. What is needed is a unifying approach.” BellSouth said the bill didn’t address the crucial question of USF reform: “Where does the money come from? It is the funding side of the universal service equation that is in peril; the distribution side should not be addressed separately.”
Low-volume, low-income consumers who depend on “lifeline” phone services will have to pay a “disproportionate” amount into the Universal Service Fund (USF) if the FCC adopts a connection-based contribution methodology, a new report by the New Millennium Research Council (NMRC) said. “A per-line charge would be harmful to the very population the fund seeks to help,” as low-volume long distance service callers, who represent 40% of consumers, would be “required to pay the bulk” of the universal service funding, said Jeffrey Kramer, senior legislative representative for AARP.
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.