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Universal Service To Universal Access
© 1995 - International Research Center



Tantalizingly close to toppling the cable/telco cross-ownership ban once and for all, Local Exchange Carriers wait for the courts, Congress and/or the FCC to cut them loose from legal limbo. The inevitable march at the federal level toward opening the video marketplace has competitors scrambling to ensure anti-competitive safeguards are in place. State and local governments also are sounding warnings that they have jurisdiction over intraLATA services and they don't intend to see their authority preempted.
-- Deborah Ely, Washington Editor in America's Network, February 15, 1995

Is the 1995-96 legislative session the year that the Communications Act of 1934 is finally updated? Attempts last session faltered and no action was taken. The same may happen again. On June 15, 1995 the Senate approved telecommunications reform legislation, S. 652 by a vote of 81 - 18. On August 4, 1995 the House approved its version H.R. 1555 by a vote of 305 - 117 including the Manager's Amendment which substantially alters some of the original intent. A conference committee has been selected consisting of 11 senators and 9 representatives, though an additional 25 House members will participate in portions of the negotiations for a total of 45 conferees.

The outcome remains uncertain and this session is proving a busy one with the budget crisis, welfare reform, Bosnian peacekeeping efforts and other issues at the fore. Even if the conference committee produces a bill that both houses can and do pass, the president has threatened a veto over cable rate deregulation, media concentration, and the terms under which the RBOCs can enter the long distance market. The total federal legislative telecommunications reform effort is enormously complex with wide-ranging implications beyond the scope of this study. We will concentrate here on elements that concern the role and evolution of Universal Service.

Both the Senate and House versions direct a Federal-State Joint Board, comprised of three federal and four state representatives, to recommend a definition of and funding mechanisms for Universal Service to the FCC. The House version includes an additional state appointed utility consumer advocate representative. After enactment of legislation, the Board has 270 days to submit its recommendations and the FCC one year to complete any related proceedings. The House bill gives the Board a five year life shifting oversight to the FCC, whereas the Senate envisions an ongoing role.

Both measures seek to promote "reasonably comparable services for the general public in urban and rural areas, while maintaining just and reasonable rates." The Senate version goes farther in asserting that "access to advanced telecommunications and information services should be provided in all regions of the Nation" and that "citizens in rural and high cost areas should have access to the benefits of advanced telecommunication and information services for health care, education, economic development, and other public purposes." In advancing those goals, the Senate version provides for special telecommunication access rates for rural health care facilities, most schools and libraries. While the House bill directs the Joint Board to recommend "specific and predictable mechanisms to provide adequate and sustainable support for Universal Service" and requires that all carriers make "equitable and nondiscriminatory contribution," the Senate version is more specific regarding contributions to and payments from a Universal Service fund. Senator John McCain of Arizona had offered a failed amendment that would have replaced the current system with a need-based voucher system, though the conference committee may revisit this proposal.

While both bills seek to address the difficult definition of future Universal Service capabilities, the Senate version is more forward looking and adaptive in requiring that the determination of included service elements be driven by "advances in telecommunications and information services" which "are essential for Americans to participate effectively in the economic, academic, medical, and democratic processes of the Nation." The Senate bill also allows the states to provide for additional conditions to advance Universal Service as long as these additions are paid for by the state and don't conflict with Federal rules. The Manager's Amendment to H.R. 1555 requires that the interest on escrow deposits received by the FCC for its spectrum auctions be used to establish a Telecommunications Development Fund. The fund would provide access to capital (as the REA does for rural telcos) for small businesses in order to enhance competition in the telecommunications industry. The Manager's Amendment further allows states to waive the rural telco exemption from interconnection/unbundling requirements and changes the standard of access by the disabled from "undue burden" to "readily achievable."

I voted for this important legislation because it seeks to promote competition in practically all telecommunications markets. It also reduces the federal regulatory burden on communications firms. As a result of more competition and less regulation, American consumers will benefit from a greater choice of telecommunications services with lower prices and higher quality than is presently available. The legislation will allow local telephone companies to compete with cable companies to supply video services to homes across America. Once local telephone loops are open to competition, Bell operating companies would be allowed to compete in long distance and manufacturing markets. The bill also provides for the timely entry of Bell operating companies into electronic publishing and alarm services. Despite passage of both Senate and House measures by overwhelming margins, controversy over selected provisions contained in the telecommunications reform measures insure that further modification of the legislation will be sought during the House/Senate conference.
-- John Shadegg, Congressional Representative, 4th District, Arizona

Pending FCC Initiatives:

The Federal Communications Commission (FCC) has also entered a process to review and revise Universal Service in response to some shortcoming in hoped for telephone subscribership rates and in anticipation of competitive local markets. On July 13, 1995 the FCC adopted two Notices of Proposed Rule Making (NPRM) and a Notice of Inquiry (NOI) regarding Universal Service. The comment and reply period for all three have now concluded, but subsequent action has not yet been taken. The FCC will eventually refer its proposals to the federal-state joint board on jurisdictional separations for a recommended decision.

Increase Telephone Subscribership:

Notice of Proposed Rule Making (NPRM) FCC 95-281 seeks to address the fact that while the average telephone subscribership rate is 94%, it is substantially lower for certain population groups, namely African-American, Hispanic and Native American households as well as those who are unemployed, receive public assistance or are "mobile" in their lifestyle. Many households without phone service were once connected but subsequently disconnected for failure to pay long distance charges. LECs could be prohibited from disconnecting local service for non-payment of interstate long distance charges (already prohibited in Arizona by Administrative Code section R14-2-509 subsection 1c) or required to offer interstate long distance blocking options or preset monthly limits on time or expenditures.

The NPRM also seeks to explore the feasibility of revising or expanding Link-Up America to better serve low income subscribers in connecting (or reconnecting) phone service and similarly adapting Lifeline Assistance with the aim of improving their retention as consistent subscribers. Significantly, the FCC also will review expanding Lifeline Assistance to cover multi-line public institutions, such as schools and libraries, taking into account their community role within the National Information Infrastructure.

Reconsidering the USF for High Cost Areas:

Notice of Proposed Rule Making (NPRM) FCC 95-282 and its attached Notice of Inquiry (NOI) exhibit the FCC's interest that the distribution of the Universal Service Fund (USF) be more equitable and efficient and its concern that the current implementation of the fund in providing assistance to Local Exchange Carriers in high cost areas may act as "de facto barriers to competitive entry." The FCC states four principles to consider in evaluating its proposals:

Currently, USF subsidies are provided to LECs based on their reported costs to provide phone service in high-cost, primarily rural, areas. The FCC is considering a "high-cost credit," essentially a voucher, for each individual subscriber line in high-cost areas, allowing customers to choose a LEC who would then receive that credit. The high-cost credits may be limited to areas where local competition is established but issues as to determining the presence of competition and defining minimum service commitments remain.

The FCC is interested in more precisely targeting high-cost areas and may move from variable and usually large geographic areas to "Census Block Groups" of from 250 to 550 housing units as a basic geographic unit for which to calculate costs of service and subsidy levels. The current calculation are based on the LEC's reported costs of service but are being reconsidered. In the future, they may employ stricter guidelines in determining the LEC's costs or move to the use of proxy factors (such as subscriber density per square mile, average distance from nearest wire center, terrain, and climate) to calculate an objective high-cost basis independent of actual LEC costs. Yet a third option would be to apply such proxy factors to determine total support levels to be provided to each state, distribute the equivalent of block grants, and allow state Public Utility Commissions to design their own plans, in accordance with FCC guidelines, for distributing assistance to the LECs servicing high-cost areas.

The Dial Equipment Minute (DEM) weighting rules, allowing LECs with study areas of no more than 50,000 access lines to allocate a higher percentage of local switching costs to the interstate jurisdiction, may be revised or eliminated. And once competition for local telephone services is established, a system of competitive bidding by LECs to act as a "carrier of last resort" in specific Census Block Groups may be implemented. In an effort to control USF expenditures, assistance to any area that would total less than $1 per line per month may be eliminated. Also under consideration is an indexed cap for the total USF with adjustments in eligibility thresholds to keep within that level. And finally a proposal is included to means-test Universal Service assistance for the intended individual telephone subscribers.

All in all, an enormous range of Federal legislative and regulatory reconsideration of telecommunications issues is underway, which will affect the definition and manner in which Universal Service is provided for decades to come. Unfortunately, until the results of the Congressional conference committee are known and the proposed legislation is acted upon, matters are not likely to become much clearer. Even then, it will take a year for the new Federal-State Joint Board to make its recommendations and the FCC to complete related hearings. If telecommunications reform legislation passes this session, matters will become increasingly well defined and understood through calendar 1996.

The ostensible goal of Universal Service is to make sure Americans of meager means can procure essential telecom services in high-cost areas at "just and reasonable rates." Fine and dandy. But does this require perverting the economic foundations of a $100 billion industry? Has anyone asked whether there is a more direct way to help the poor, such as means-tested vouchers that can be used to procure services on the open market? Food is more important than phone calls, but we sure don't ship food stamps directly to Stop-and-Shop and Grand Union based on some weird geo-political formula of hard-to-feed locations. Yet that's exactly what we do in the telecom business.

Why is it that the regional Bells haven't adapted readily available technology to solve the problem of delivering basic services to high-cost areas? Could it have anything to do with the fact that all their costs get buried in the rate base, giving them a powerful economic incentive to remain inefficient? And just how is it a newcomer is supposed to compete if they can't outperform the incumbent in exactly those markets that are being uneconomically served? If telecom prices were allowed to reflect costs directly, undistorted by hidden taxes and subsidies, both the issues of cream skimming and red lining would go away.
-- Bill Frezza,President of Wireless Computing Associates in Communications Week,11/27/95