Efforts to Reform USF Gain Momentum, Incite Controversy

As the FCC considers reformation of the Universal Service Fund, Congress has its own ideas for change. Meanwhile, the Keep USF Fair Coalition is taking sides against the FCC and Chairman Kevin Martins support of a numbers-based system, and professing ideas more in line with a newly proposed House bill.

The numbers-based system would assess USF fees of $1-$2 more per month to everyone with a landline telephone, regardless of whether consumers make long-distance calls. Martin supports this method, as opposed to the current revenue-based system, or the proposal that the government levy charges based on the number of connections whether Internet, landline or cable per household.

The Keep Universal Service Fund Fair Coalition says the numbers system would result in higher federal phone taxes of as much as $707 million for 43 million low-volume long-distance user households in the United States. Its members including the Alliance For Retired Americans, the American Association Of People With Disabilities and the Black Leadership Forum especially are concerned about low-income and elderly people on fixed incomes having to pay higher phone bills.

The coalition on Thursday released its latest report, Losing Numbers: How Americas Most Vulnerable Consumers Could Suffer Under Universal Service Fund (USF) Reform, saying the proposed methodology would require low-volume and low-income consumers to subsidize high-income, high-volume callers by what ultimately would total millions of dollars per year.

One of the most alarming aspects of the numbers-based proposal is that no one has yet produced an estimate of the effect of the change on low-income consumers, including the poor and seniors on fixed incomes, says Linda Sherry, consumer action director of national priorities for Keep USF Fair. It does not make sense for the FCC or Congress to change the collection of USF funding without first taking a long, hard look at who would pay the piper for the so-called simplicity of a numbers-based plan. At least give us some hard facts.

Keep USF Fair members want the USF contribution base broadened to include revenue from all telecommunications providers, including those using IP technologies. They also want the government to cap revenue-based contributions at between 12 percent and 15 percent of income from interstate telecommunications, including VoIP. The group says carriers still would be assessed based on income up to that cap amount, and would still have the right to charge end users a USF recovery charge not to exceed the capped amount.

The coalition says its plan would benefit low-income consumers who make few long-distance calls. Those users would be subject to flat assessments for their wireline and wireless telephone numbers, but the level of those assessments would be measured in cents, not the $1-$2 anticipated under a numbers or connections-based system, the group maintains.

The Hubbub over USF

The changing regulatory landscape is prompting industry re-evaluation of the USF contribution structure. One of the latest moves — the deregulation of DSL altered the definition of DSL access; instead of being classified as a telecommunications service it is now an information service. This means, after next year, phone companies likely will not have to pay into the fund based on DSL revenues even though DSL lines carry VoIP services. Telcos chief rivals, the cable companies, do not contribute to the USF even though cable modems transport voice traffic. The push for reform is coming from all sides: Congress, the FCC, state regulators, consumer groups and service providers, all with different aims, intents and timelines.

Kathleen Grillo, vice president of federal regulatory advocacy for Verizon Communications Inc., told National Association of Regulatory Utility Commissioners (NARUC) annual conference attendees this week the current revenue-based system is becoming ineffective because it is difficult to determine which of companies bundled products are telecom services, rather than information services. Verizon supports the numbers-based system, as does Cox Communications. Coxs Doug Garrett, vice president of regulatory affairs in the Western region, called the numbers-based system the most perfect of all imperfect solutions.

The Cellular Telecommunications & Internet Association (CTIA), however, shares the Keep USF Fair Coalitions concern that low-volume, low-income users would be adversely affected.

One of the most widely floated ideas is to broaden the required base of contributors so the USF continues to grow, promoting rural broadband and wireless infrastructure investment and access. Indeed, that is the approach the Keep USF Fair Coalition supports, as well as Congressmen Rick Boucher (D-Va.) and Lee Terry (R-Neb.), who on Thursday unveiled draft legislation called the Universal Service Reform Act of 2005.

Boucher and Terrys proposed legislation would require any entity paying into the USF under the current system, such as long-distance providers, to contribute, as well as cable telephony and VoIP providers, and providers offering network connections for a fee to the public including DSL, cable modem, WiMAX and broadband over powerline providers to pay into the fund.

The proposed bill calls for input by Dec. 23 and will not be considered before next year. Boucher and Terry say they want to encourage broadband deployment in rural areas, and their bill would require recipients of USF payments to deploy broadband with download speeds of at least 1mbps within the first five years of the bills enactment.

The legislation also seeks to reduce the pool of carriers asking for universal service funding by requiring providers to meet specific conditions, and by compensating eligible carriers based on their actual costs of providing service. The bill also calls for help resolving the problem of phantom traffic, which would increase the amount of intercarrier compensation carriers receive. The act also would change the USFs rural health care support mechanism by making sure rural medical facilities do not pay more than urban health care providers for services including broadband.

Industry associations including USTelecom and the Alliance for Public Technology (APT) praised the proposed legislation.

This legislation is another important step toward updating the nations telecom laws, said Walter B. McCormick Jr., president and CEO of USTelecom, in a statement. We also strongly recommend that important concepts in this legislation, like broadening the base of support for the fund, tightening the ETC requirements and providing certainty on compliance with the Anti-Deficiency Act, should serve as the core universal service components for comprehensive reform.

Dan Phythyon, APTs public policy director and general counsel, agreed. Bouchers and Terrys efforts should lend even more momentum to the reform process, he said.

The issues surrounding USF reform remain complex and controversial, and on no certain time frame. With Congress now weighing in on telecom reform, the FCC will have a more difficult time getting its initiatives addressed. It’s always tricky getting things done at the FCC at the same time that the Congress is contemplating a major rewrite, Blair Levin, an analyst with Legg Mason and a chief of staff in the 1990s under former FCC chairman Reed Hundt, told PHONE+ late this summer.

Providers opposed to certain changes in the USF likely will lobby politicians; for example, the cable industry is concerned about tacking on broadband to the current USF, as Coxs Garrett explained at NARUC, because cable companies have wired 90 percent of the country without using subsidies. Public utilities commissioners, however, do want broadband to qualify as a telecommunications service. That likely would lead to another wave of USF reform, explained Ray Baum of the Oregon PUC, because it would make more sense to use a connections-based system. We have to get away from revenue-based, he said.

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