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Universal Service To Universal Access
© 1995 - International Research Center


Over the last decade residential telephone subscribership in Arizona has caught up with national penetration averages. Between 1984 and 1993, the percentage of Arizona households with telephones rose from 86.9% to 93.4% (up 6.4%) while the national average rose from 91.4% to 94.2% (up 2.3%). In 1993, thirty four states exceeded Arizona's subscribership rate ranging up to a high of 97.3% (Pennsylvania). (Source : FCC Trend Report, February, 1995)

The Arizona Corporation Commission (ACC) is authorized by the state's constitution (Article XV) to "prescribe just and reasonable rates and charges to be made and collected, by public services corporations." Under its constitutional charter it is effectively another entire branch of state government with three popularly elected commissioners serving staggered, six-year, non-consecutive terms. Up until now, Arizona has not had as structured and rule-based a Universal Service fund as some states. A fund contributed to by LECs and toll service providers (but not by all connected to the public switched network) developed out of a Contel rate case in the late 1980's. They were acquired by GTE and subsequently, the service of the "study area" passed to Citizens Utility, who currently receives a rate subsidy of almost $750,000 a year. They are the only firm supported from the current state Universal Service fund.

The Arizona Corporation Commission (ACC) worked with industry and consumer groups to develop a more comprehensive Universal Service policy and this past summer moved to establish a new Arizona Universal Service Fund (AUSF). Its purpose is "primarily to assure the availability and affordability of basic local exchange telephone service in areas that are predominantly rural" and to broaden the base of telecommunications providers contributing in a competitively neutral manner. The proposed rules will be before the commission in the first quarter of 1996 with attendant public hearings. Section R14-2-1201 of the rules defines the required features of "basic local exchange telephone service":

The rules require that all telecommunications service providers that interconnect to the public switched network provide contributions to the AUSF. Providers of basic local exchange service (or equivalent service) will provide one-half of the AUSF funding based upon total access lines (including business, residence, wireless, public access and others) assessed as an access line surcharge. This incorporates all wireless providers (including cellular, paging and Commercial Mobile Radio Service) that interconnect to the public switched network as well as any non-traditional providers (such as cable television companies) that choose to offer basic local exchange telephone service. A second category consisting of providers of intrastate toll service will provide the other half of the AUSF funding assessed as a percentage of their total Arizona intrastate toll revenue. All other types of telecommunications service providers that interconnect to the public switched network after the rules take effect can select which category of service provider they will join, irrevocable for at least 3 years.

Any Local Exchange Carrier (LEC) may seek AUSF support in conjunction with a rate request. The amount of support will be based upon the difference between the benchmark rates for basic local exchange telephone service provided by the carrier and the appropriate cost to provide service as determined by the ACC, minus any Universal Service support from federal sources. For small LECs (20,000 of fewer AZ access lines), the AUSF support area includes all exchanges they serve. For intermediate LECs (more than 20,000 but less than 200,000 AZ access lines), the AUSF support area will be either all exchanges they serve in Arizona or a differently defined support area as approved by the ACC. Any requests by intermediate LECs for AUSF support more than three years after the new rules become effective or by large LECs (more than 200,000 AZ access lines) any time after the rules become effective, will be based on U.S. Census Blocks (small geographic areas) and the Total Service Long Run Incremental Cost, based on incremental costs given that the requester is already providing other services and is further based on the least cost, most efficient technology capable of being implemented at the time.

Once the ACC approves AUSF support to a provider for a defined area, that support will also be available to competitive providers calculated on a per customer basis, at the same level at which the incumbent provider receives support. US West will serve as interim Administrator of the AUSF for a transition period pending appointment of a private, neutral third party no later than July 1, 1996. The ACC will review the implementation of the AUSF within three years to recommend any necessary changes.

The Federal Universal Service Fund (USF) assistance (or jurisdictional shift) from the National Exchange Carrier Association (NECA) for Arizona in 1995 (capped) is $14.5 million. Direct subsidies are provided to Local Exchange Carriers servicing high-cost areas, whose costs exceed 115% of the national average. NECA's 1995 disbursements are based on 1993 year end costs. The estimated 1996 figures are based on 1994 year end costs and still subject to modification by pending cap adjustments and USF rule alterations.

1995 $ Est.1996 $
Arizona Telephone Company 198,720. 224,712.
Citizens Utilities Company
(DBA Citizens - Arizona)
0. 3,809,881.
Citizens Utilities Rural Company Inc. 3,035,350. 5,117,916.
Contel of California - Arizona 540,002. 1,133,970.
Contel of West Inc. (dba GTE of West AZ Inc.) 4,647,822.0.
Fort Mohave Telecommunications Inc. 172,682. 347,506.
Gila River Telecommunications Inc. 751,386. 623,490.
Midvale Telephone Exchange Inc. 68,003. 118,368.
Navajo Communications Company Inc. 3,626,250. 2,804,696.
Southwestern Telephone Company 0. 18,776.
Tohono O'Odham Utility Authority 354,382. 322,946.
Universal Telephone Company of Southwest Arizona 100,978. 98,840.
US West Communications (formerly Mountain Bell - Arizona) 0. 0.
Valley Telephone Cooperative Inc. 970,338. 1,004,738.
Arizona Total NECA USF Subsidies 14,465,913. 15,625,839.

The FCC first certified Arizona for participation in Lifeline Assistance in 1986 followed by Link-Up America in 1988. In 1994, NECA provided $308,402 in SLC waiver subsidies matched by the state to 9,146 Arizona subscribers and $8,533 in Link-Up America subsidies to 367 Arizona subscribers. A Telecommunications Relay Service (TRS) has been in statewide operation since 1987 including toll-free access and funded by a surcharge on 911 revenue. Handicapped telephone subscribers are eligible for a 35% discount on direct dialed intraLATA toll calls and for the waiving of directory assistance charges. Since 1991, the Arizona Department of Economic Security (DES) has run the Telephone Assistance Program (TAP), subsidizing residential telephone subscriber costs for almost 7,000 households with low incomes and certifiable medical problems. It is funded by US West and serves only their customers.

Five Arizona telephone companies (Arizona Telephone Co., Citizens Utilities Rural Co., Gila River Telecommunications Inc., Tohono O'Odham Utility Authority, Valley Telephone Coop Inc.) currently participate in the USDA Rural Utilities Service (RUS) program for rural telecommunications loan support.