[Senate Hearing 110-1123]
[From the U.S. Government Publishing Office]
S. Hrg. 110-1123
THE UNIVERSAL SERVICE FUND:
ASSESSING THE RECOMMENDATIONS OF THE FEDERAL-STATE JOINT BOARD
=======================================================================
HEARING
before the
COMMITTEE ON COMMERCE,
SCIENCE, AND TRANSPORTATION
UNITED STATES SENATE
ONE HUNDRED TENTH CONGRESS
FIRST SESSION
__________
JUNE 12, 2007
__________
Printed for the use of the Committee on Commerce, Science, and
Transportation
----------
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SENATE COMMITTEE ON COMMERCE, SCIENCE, AND TRANSPORTATION
ONE HUNDRED TENTH CONGRESS
FIRST SESSION
DANIEL K. INOUYE, Hawaii, Chairman
JOHN D. ROCKEFELLER IV, West TED STEVENS, Alaska, Vice Chairman
Virginia JOHN McCAIN, Arizona
JOHN F. KERRY, Massachusetts TRENT LOTT, Mississippi
BYRON L. DORGAN, North Dakota KAY BAILEY HUTCHISON, Texas
BARBARA BOXER, California OLYMPIA J. SNOWE, Maine
BILL NELSON, Florida GORDON H. SMITH, Oregon
MARIA CANTWELL, Washington JOHN ENSIGN, Nevada
FRANK R. LAUTENBERG, New Jersey JOHN E. SUNUNU, New Hampshire
MARK PRYOR, Arkansas JIM DeMINT, South Carolina
THOMAS R. CARPER, Delaware DAVID VITTER, Louisiana
CLAIRE McCASKILL, Missouri JOHN THUNE, South Dakota
AMY KLOBUCHAR, Minnesota
Margaret L. Cummisky, Democratic Staff Director and Chief Counsel
Lila Harper Helms, Democratic Deputy Staff Director and Policy Director
Christine D. Kurth, Republican Staff Director and General Counsel
Kenneth R. Nahigian, Republican Deputy Staff Director and Chief Counsel
C O N T E N T S
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Page
Hearing held on June 12, 2007.................................... 1
Statement of Senator Dorgan...................................... 2
Statement of Senator Klobuchar................................... 22
Statement of Senator McCaskill................................... 29
Statement of Senator Pryor....................................... 27
Statement of Senator Snowe....................................... 33
Statement of Senator Stevens..................................... 1
Prepared statement........................................... 2
Statement of Senator Sununu...................................... 3
Letter dated April 13, 2007 to Hon. Deborah Tate............. 3
Witnesses
Flannery, Jr., Everett B., Chief Deputy, Sheriff's Office,
Kennebec County, State of Maine; Representative, Maine
Sheriffs' Association.......................................... 59
Prepared statement........................................... 61
Foxman, Jonathan D., President and CEO, Chinook Wireless......... 46
Prepared statement........................................... 48
Lubin, Joel E., Vice President, Regulatory Planning and Policy,
AT&T Services, Inc............................................. 56
Prepared statement........................................... 57
Nishi, Roger, Chairman, Organization for the Promotion and
Advancement of Small Telecommunications Companies (OPASTCO);
Vice President, Industry Relations, Waitsfield and Champlain
Valley Telecom; on Behalf of National Telecommunications
Cooperative Association; Western Telecommunications Alliance;
and Independent Telephone and Telecommunications Alliance...... 42
Prepared statement........................................... 44
Rooney, John E., President and CEO, United States Cellular
Corporation.................................................... 37
Prepared statement........................................... 39
Tate, Hon. Deborah Taylor, Commissioner, Federal Communications
Commission; and Chair, Federal-State Joint Board on Universal
Service........................................................ 5
Prepared statement........................................... 7
Appendix
Inouye, Hon. Daniel K., U.S. Senator from Hawaii, prepared
statement...................................................... 91
National Association of State Utility Consumer Advocates
(NASUCA), prepared statement................................... 96
Response to written questions submitted by Hon. Daniel K. Inouye
to:
Jonathan D. Foxman........................................... 106
Roger Nishi.................................................. 105
Hon. Deborah Taylor Tate..................................... 102
Response to written questions submitted by Hon. Bill Nelson to:
Jonathan D. Foxman........................................... 107
Roger Nishi.................................................. 106
Hon. Deborah Taylor Tate..................................... 103
Response to written questions submitted by Hon. Frank R.
Lautenberg to Hon. Deborah Taylor Tate......................... 104
Supplemental information supplied by ComspanUSA.................. 91
THE UNIVERSAL SERVICE FUND:
ASSESSING THE RECOMMENDATIONS OF THE
FEDERAL-STATE JOINT BOARD
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TUESDAY, JUNE 12, 2007
U.S. Senate,
Committee on Commerce, Science, and Transportation,
Washington, DC.
The Committee met, pursuant to notice, at 10:05 a.m. in
room SR-253, Russell Senate Office Building, Hon. Ted Stevens,
presiding.
OPENING STATEMENT OF HON. TED STEVENS,
U.S. SENATOR FROM ALASKA
Senator Stevens. Good morning. The Chairman will be along,
we hope, in a little while. For those of you who are interns,
you can come up and use some of these chairs up here.
Today, the Committee revisits--this is the Chairman's
statement--today, the Committee revisits a familiar topic,
Universal Service. More than a decade ago, in the
Telecommunications Act of 1996, as a Congress, we made clear
that we are committed to the principle of Universal Service. We
stated that, in all regions of the Nation--rural, urban, and
everywhere in between--consumers are entitled to comparable
services at comparable rates. The Federal Communications
Commission was charged with translating this lofty principle
into concrete action. To do so, they set up the Universal
Service Fund.
Today, that Fund faces some difficult challenges. If the
Fund continues to expand at current pace, some say we may
jeopardize Universal Service itself. Incumbent carriers urge us
to place limits on the ability of other carriers to access
these funds. ``How is it feasible,'' they ask, ``for the
Universal Service Fund to support so many different carriers
serving so few customers in rural areas?'' Still other
carriers, many of them, wireless providers, ask if it's fair to
reduce support that may be necessary to serve large swaths of
rural America. ``In order to provide comparable services at
comparable rates,'' they say, ``we need to access these
funds.''
Last month, the Federal-State Joint Board on Universal
Service weighed in on this matter. It recommended the
Commission cap the amount of funds available to competitive
providers as an interim measure, pending broader Universal
Service reform. In the end, we cannot let short-term proposals
free us from the need to address long-term reform. If
comprehensive reform requires a more vigorous review of the
identical support rule or any other aspect of existing policy,
we should proceed down that road. After all, ensuring the long-
term sufficiency and stability of Universal Service funds means
ensuring all of our citizens have communications capabilities
they need to compete in the global economy.
I'll place my statement in the record, following the
remarks of the Chairman.
[The prepared statement of Senator Stevens follows:]
Prepared Statement of Hon. Ted Stevens, U.S. Senator from Alaska
I thank the Chairman for scheduling this hearing. Senator Inouye is
my great friend who has become a leader with respect to Universal
Service ever since we worked together to assure Alaska and Hawaii had
the same phone rates as in the rest of our country.
This Committee has heard much about problems with Universal Service
which need to be addressed:
contributions only come from long distance service.
broadband is not explicitly supported.
and critics continue to raise accountability concerns.
For me the importance of a unified and national communications
infrastructure remains paramount and Universal Service is needed to
ensure the availability of communications services throughout the
country. I hope this hearing today will move the Committee forward to
engage Universal Service reform in a comprehensive fashion.
The Committee will hear today about the proposed cap on wireless
Universal Service support. My hope is the panel will explain if and how
an interim cap would advance the fundamental reform Universal Service
needs.
To put off such reform the more risk there is that there will be a
communications divide in this country, a shameful outcome which would
hurt jobs and small businesses throughout rural America, including my
home state Alaska.
Thank you.
Senator Stevens. Senator, do you have an opening statement?
STATEMENT OF HON. BYRON L. DORGAN,
U.S. SENATOR FROM NORTH DAKOTA
Senator Dorgan. Just very briefly, Senator Stevens.
I'm not going to be able to stay for the entire hearing,
because of other committees, but I do want to say--it's been
obvious, for some long while, I think, to many of us on this
Committee, that the Universal Service Fund issue needs
attention, and needs serious attention.
I think those of us that come from rural states understand
the urgency of fixing this problem. The ``comparable services
at comparable prices,'' represents the language that we
included in 1996. Those of us who were on the Committee then
were deliberate, in terms of what we wanted to do and what we
intended to accomplish. We included, by the way, ``advanced
services.'' At that point, we didn't know much about broadband,
but we included ``advanced services'' in that requirement.
I acknowledge that the Joint Board has done its work. It's
now very important that we proceeds, and see that the FCC
proceed, in untangling these problems, resolving them, and
having a Universal Service Fund that does what it's intended to
do so that we are not left, a year or 2 or 5 years from now
wondering how on Earth this gets fixed.
Senator Stevens, you and I, and others on this Committee,
have introduced legislation on these issues. And my hope is
that at last--at long, long last--we will be able to see these
resolved.
Senator Stevens. Thank you very much.
Senator Sununu?
STATEMENT OF HON. JOHN E. SUNUNU,
U.S. SENATOR FROM NEW HAMPSHIRE
Senator Sununu. Thank you, Mr. Chairman.
I simply want to offer a few comments about the recent
decision by the Joint Board.
As Senator Dorgan indicated, this is an issue we've been
going around for some time. We tried to deal with it in the
comprehensive telecommunications bill we marked up last year.
And, unfortunately, that didn't move forward. We had a proposal
in Committee for an overall cap on the Fund, which I think is
extremely important, because there is so much going on within
the Fund for which it was not intended. It provides subsidies
to companies instead of consumers. It provides subsidies to
consumers in areas that aren't necessarily deserving of
subsidies, because they're not areas that are underserved,
they're not at an economic disadvantage, or they're not true
rural high-cost areas. That should be the focus of the Fund.
What the Joint Board has done is recommend a relatively
arbitrary cap for one segment of Universal Service, the CETCs.
I had, with other members of this Committee, written a letter
specifically suggesting they not take this approach, that they
look at a more comprehensive approach for capping funds.
And, Mr. Chairman, I would ask that that letter be made
part of the record.
Senator Stevens. Without objection.
[The information previously referred to follows:]
United States Senate
Washington, DC, April 13, 2007
Hon. Deborah Tate,
Chairman,
Federal-State Joint Board on Universal Service,
Federal Communications Commission,
Washington, DC.
Dear Joint Board Chairman Tate,
The Federal-State Joint Board on Universal Service (Board) was
established, in part, to provide recommendations on how best to
preserve and advance the Federal Universal Service (USF) program. We
arc writing today to provide the Board with our views on the USF
program, which we believe must be substantially reformed to if it is to
continue, and to share our serious concerns over reports of recent and
future increases in the contribution factor, which has pushed the
entire program closer to a boiling point. The Board has the opportunity
and, in our judgment, the obligation, to suggest reforms and structural
changes to the USF program that could result in long-term solvency, and
ensure that only consumers who truly need the program's support receive
it. Failure of the Board to make the difficult decisions necessary at
this critical juncture will reduce political support and sustainability
of the program. We urge the Board to make the tough decisions and
proposals necessary to place the program on a new course. In other
words, it is time to be bold.
We strongly request that the Board recommend an overall cap on the
entire USF program. Last year, the four of us and others supported an
amendment to a telecommunications reform bill during consideration in
the Senate Commerce Committee that would have capped the overall USF
program. We believe a cap would ensure that the administrators of the
USF program spend the money more effectively and efficiently, and would
work to reduce this limitless and recurring tax on consumers.
We do not support any plan that would cap only one select group of
providers but not others, as we believe such a fix would unfairly skew
the marketplace. Instead, we reiterate the need for capping the overall
program and doing so in a manner that does not pick winners and losers
or favor one technology over another. We also urge you not to use
interim measures, such as a temporary cap, to address the pressing
issues facing the USF program. Many interim measures enacted by the
Federal Communications Commission in the past have lived far longer
than intended when proposed.
While a cap on all USF program funding is truly needed, a cap is
only as valuable as the corresponding changes made to the USF
distribution mechanism. Funding multiple providers without a reduction
in the level of support for existing providers losing customers has put
the Fund on an uncontrollable growth pattern that will only result in
higher telephone bills for all Americans. If this is not addressed, the
USF program will over subsidize some markets at the expense of those
markets most in need.
In addition, we strongly recommend the Board give significant
weight to a reverse auction mechanism for distributing USF support.
This can be done in a number of ways, including establishing the
support level for a study area, state, or otherwise (i.e., maximum
price support point), or establishing a sole provider eligible for
support in a respective market. However accomplished, allowing all
providers to take part of one unified auction in a market--not just a
platform-specific proposal--to bid down support needed to serve
particular consumers will reduce the total cost of the USF high-cost
program. It will also bring much needed efficiency to the system,
facilitate regulatory parity, allow for the emergence of new
technologies to many markets, eliminate the distinction between rural
and non-rural incumbent carriers, and instill necessary market-oriented
solutions.
In sum, the USF program has not kept pace with the remarkable
innovation that has occurred in the communications industry over the
last few years. It must be dramatically reformed to operate in a way
that best serves the American people. The Board must transform this
program into one that takes in and distributes USF funds in a
responsible manner that ensures Americans are not subjected to
limitless increases on their phone bills. We respectfully request that
you take the steps necessary to fully reform the USF program and reject
short-term solvency solutions.
We ask that this letter be handled in strict accordance with
existing agency rules, regulations, and ethical guidelines.
Sincerely,
John E. Sununu
John McCain
Jim DeMint
John Ensign
Senator Sununu. I think that a piecemeal approach like this
one, it's not necessarily fair, it has the potential to skew
the markets; but, two, it's just passing these significant
problems within the system down the road. And, in many ways, I
think it's going to make it harder for Congress to act in a
comprehensive way. I think it's going to create additional
inequities in the system. And I find it somewhat disappointing.
The Joint Board has said, ``We're going to recommend a more
comprehensive approach in 6 months.'' That brings us really to
the heart of a 2008 campaign season, and, frankly, I think that
is highly unlikely. I hope we hear, today, not just from
Commissioner Tate, but from other stakeholders and
participants, some very specific ideas about how to enact
additional reforms, what really needs to be done to make sure
this program works effectively for those it was intended, and
how and why we should have confidence that the costs of the
program aren't going to simply continue to accelerate and
continue to be passed on to consumers. A 10 percent or 12
percent or 15 percent surcharge on interstate calls is pretty
significant, and that's levied on every consumer in America.
And when you're assessing surcharges that high, you ought to be
delivering something that's measurable, that's tangible, and
something that's going to those people that need it most.
Thank you, Mr. Chairman.
Senator Stevens. Senator Pryor, did you have a statement
you wished to make?
Senator Pryor. I don't. Thank you, Mr. Chairman.
Senator Stevens. Thank you very much.
Our first witness is the Honorable Deborah Taylor Tate,
Commissioner of the FCC. We're pleased to have your statement.
STATEMENT OF HON. DEBORAH TAYLOR TATE,
COMMISSIONER, FEDERAL COMMUNICATIONS COMMISSION;
AND CHAIR, FEDERAL-STATE JOINT BOARD
ON UNIVERSAL SERVICE
Ms. Tate. Thank you, Vice Chairman Stevens and
distinguished Members of the Committee.
I do welcome the opportunity to be here to testify today
and to talk with you all as the Federal Chair of the Joint
Board on Universal Service regarding our recent consensus
recommendation of the Joint Board, that the FCC take immediate
action to rein in the explosive growth in the high-cost
Universal Service support disbursements. Like many of you all,
I'm from a rural state, and I've seen and experienced,
firsthand, opportunities that are provided by Universal Service
in those rural areas. I've told you all before that I remember
the day the telephone wire was rolled up a gravel road to my
grandmother's house in rural Tennessee, an event that likely
would not have occurred without Universal Service.
I now have the distinct honor and responsibility and
privilege to help design and implement policies that will
preserve and advance Universal Service for all Americans.
I think we all agree a modern and high-quality
communications infrastructure is essential to ensure all
Americans, especially those living in rural communities, have
access to the full array of educational, economic, and other
opportunities that are delivered via advanced services. Indeed,
Congress--you all--have directed consumers in all regions of
the Nation have access to reasonably comparable
telecommunications services, including advanced services, at
comparable rates.
As we look to achieve the long-term goals of the Universal
Service program, as you all have mentioned, including
deployment of those advanced services, we must recognize how
technological changes are putting strains on the mechanics of
both the contribution and distribution systems. The high-cost
support mechanism alone has grown from about $2.6 billion in
the year 2000 to approximately $4 billion in 2006, placing
significant pressure on the stability of the Fund.
This growth was largely due to increased support provided
to multiple competitive eligible telecommunications carriers,
CETCs, as illustrated in this series of charts. As you can see
from Chart 1, since 2003, incumbent LEC payments have been
relatively flat, the dark blue--you can see how flat that line
is--and actually have even begun to start downward. On the
other hand, Chart 1 also shows that almost all of the recent
growth in the high-cost support is largely as a result of
distributions to CETCs.
As Chart 2 shows, the CETC high-cost distributions have
been growing at a rate trend of 101 percent per year since
2002. Specifically, in 2000 CETCs received a million dollars,
and, according to USAC, now receive almost a billion, in 2006.
Chart 3 shows the rapid year-over-year dollar growth of
CETC payments. This chart highlights another problem with the
current system, CETCs presently receive high-cost support based
on the incumbent LEC's embedded cost, or per-line support
amount that the LEC receives, rather than on their own costs.
Overall, these charts illustrate our current high-cost
mechanism is in need of repair and revision. As stewards of
public funds, our obligation is to preserve and advance
Universal Service. It mandates immediate action to stem this
explosive growth in the high-cost support, while doing all we
can to move quickly toward fundamental reform to ensure that
quality services are, indeed, available to all of our citizens.
I would have preferred, and hoped, the Joint Board act more
immediately to fundamentally reform the high-cost distribution
mechanism. Unfortunately, I was not able to move us to a
consensus on that point. The Joint Board was, however, able to
reach a consensus on an interim step. Seven out of eight
members of the Joint Board agreed an interim emergency cap on
the amount of high-cost support that CETCs receive for each
state, based on 2006 support levels, was required to stabilize
the high-cost fund while the Board and the FCC further explore
comprehensive high-cost distribution reform.
The Recommended Decision and its companion Public Notice
made clear the Joint Board is totally committed to making
further recommendations, as the Senator noted, by November 1st,
within 6 months of our decision. Whether through reverse
auctions or some other cost-effective mechanism, a fundamental
reform plan will ensure that Universal Service promotes the
availability of services at reasonably comparable rates
throughout the country; hopefully, in a technologically and
competitively neutral manner.
Comprehensive reform also must take into account areas of
our country that are uniquely situated. For example, any
comprehensive reform plan, by necessity, must continue the
Commission's traditional recognition that there are underserved
lands. Tribal lands in the Lower 48, in Alaska Native Regions,
are uniquely situated and deserving of individual treatment to
ensure that they are not left behind.
I hope to continue to facilitate these discussions between
you, this Committee, Congress, the Commission, and, of course,
members of the Joint Board, while doing all we can to preserve
the Fund and ensure these services are available to consumers
no matter where they choose to live.
Thank you, again, for the opportunity to discuss these
important issues, and, of course, I'm pleased to answer
questions.
[The prepared statement of Ms. Tate follows:]
Prepared Statement of Hon. Deborah Taylor Tate, Commissioner,
Federal Communications Commission; and Chair, Federal-State Joint Board
on Universal Service
Good morning, Chairman Inouye, Vice Chairman Stevens, and
distinguished Members of the Committee. I welcome the opportunity to
testify today on the recent recommendation of the Federal-State Joint
Board on Universal Service (Joint Board) to the Federal Communications
Commission (FCC or Commission). Like many of you, I have seen and
experienced firsthand the opportunities provided by Universal Service
in very rural areas. I remember the day the telephone wire was rolled
up a gravel road to my grandmother's house in rural Tennessee--an event
that likely would not have occurred without a Universal Service
program. As a Commissioner and the Federal Chair of the Joint Board, I
now have the honor and responsibility to help design and implement
policies that will preserve and advance Universal Service to all
Americans.
All of the Joint Board members--FCC Chairman Kevin Martin, FCC
Commissioner Michael Copps, Commissioner and Joint Board State Chair
Ray Baum of Oregon, Chairman Lisa Edgar of Florida, Commissioner Larry
Landis of Indiana, Commissioner John Burke of Vermont, and Director
Billy Jack Gregg of the Consumer Advocate Division of West Virginia--
deserve praise for their commitment to addressing these complex issues
in addition to their full time jobs as Federal or state government
officials. I should also thank the members of the state and Federal
staff whose dedication and professionalism reflect the highest ideal of
government service.
Congress directed the FCC to institute the Joint Board ``to
recommend changes to any of [the FCC's] regulations in order to
implement sections 214(e) and [254]'' of the Act. The Commission has
referred a number of issues to the Joint Board and relied heavily on
its recommendations. Most relevant to the subject of today's hearing,
the Commission in 2002 asked the Joint Board to review Commission rules
related to the high-cost Universal Service support mechanisms.\1\ Among
other things, the Commission asked the Joint Board to review the
Commission's rules relating to high-cost Universal Service support in
study areas in which a competitive eligible telecommunications carrier
(CETC) is providing service.\2\ In response, the Joint Board
recommended, inter alia, that the Commission implement a ``primary
line'' restriction limiting the scope of high-cost support for each
household to a single connection that provides access to the public
telephone network. The Joint Board also made a number of
recommendations concerning the designation of eligible
telecommunications carrier (ETCs) in high-cost areas, but declined to
recommend that the Commission modify the basis of support (i.e., the
methodology used to calculate support) in study areas with multiple
ETCs.\3\ Instead, the Joint Board recommended that it and the
Commission consider possible modifications to the basis of support for
CETCs as part of an overall review of the high-cost support mechanisms
for rural and non-rural carriers.\4\
In 2004, the Commission asked the Joint Board to review, inter
alia, the Commission's rules relating to the high-cost Universal
Service support mechanisms for rural carriers and to determine the
appropriate rural mechanism to succeed the plan adopted in the Rural
Task Force Order.\5\ In August 2004, the Joint Board sought comment on
issues the Commission referred to it related to the high-cost Universal
Service support mechanisms for rural carriers.\6\ The Joint Board also
specifically sought comment on the methodology for calculating support
for ETCs in competitive study areas.\7\ Since that time, the Joint
Board has sought comment on a variety of specific proposals for
addressing the issues of Universal Service support for rural carriers
and the basis of support for competitive ETCs, including proposals
developed by members and staff of the Joint Board and the use of
reverse auctions (competitive bidding) to determine high-cost Universal
Service funding to ETCs.\8\
Since I was named the Chair of the Joint Board in 2006, the Joint
Board has continued its work to review the Universal Service policies
and respond to the FCC's referrals. I have been committed to keeping
our work on a timetable paced to fulfill our statutory role in a
thoughtful and deliberative manner. The Joint Board has held a number
of face-to-face meetings, countless conference calls, issued notices
and referrals, and reviewed hundreds of comments from interested
parties. The Joint Board staff held a retreat for 3 days in June 2006
to review outstanding and new proposals, and the Joint Board met in
August 2006 during the NARUC summer meeting. On August 11, 2006, the
Joint Board issued a Public Notice and sought comment on primary
questions, such as the overall appropriateness and legality of
implementing reverse auctions, as well as questions about the mechanics
of implementing reverse auctions, such as the role of Federal and state
jurisdictional roles, defining quality of service obligations, and the
unique questions regarding the treatment of incumbent local exchange
carriers (LECs). The Joint Board received numerous comments and reply
comments last fall, and also received additional submissions in the
record.
In September 2006, because there were several newer members of the
Joint Board, including myself, the Joint Board hosted a two-day meeting
at the FCC focusing on training. We heard from the Universal Service
Administrative Company (USAC), the National Exchange Carrier
Association (NECA), and FCC staff experts about the mechanics of the
Universal Service programs. The state members of the Joint Board and
staff met again in November 2006 during the NARUC winter meetings.
Further, on February 20, 2007, as a part of its en banc hearing in
Washington, D.C., the Joint Board heard from a number of experts,
including witnesses from the National Telecommunications Cooperative
Association, Verizon, and CTIA--The Wireless Association, discussing
specific proposals, benefits, and concerns regarding reverse auctions.
The Joint Board also heard from experts on geo-spatial mapping and
approaches to more effectively targeting the distribution of support,
including witnesses from the Polis Center in Indianapolis, CostQuest
Associates, and Embarq. We were pleased that members of your staffs
attended as well.
It became clear to the Joint Board during the course of its
deliberations that high-cost support has been rapidly increasing in
recent years, largely due to increased support provided to CETCs.
According to FCC and USAC data, in the 6 years from 2001 through 2006,
CETC support grew from $15 million to almost $1 billion--an annual
growth rate of over 100 percent. Over the same time period the USF
support to the incumbent local exchange carriers serving high-cost
rural areas under the Fund has leveled out.
Based on current estimates, CETC support in 2007 will reach at
least $1.28 billion absent Commission action. Moreover, if the
Commission were now to approve all 33 CETC petitions currently pending
before the Commission, high-cost support for CETCs could rise to as
much as $1.56 billion in 2007. This does not include the financial
impact of the approximately 35 additional CETC applications that are
pending or have been approved by the states since the beginning of
2007. High-cost support to CETCs is estimated to grow to almost $2
billion in 2008 and $2.5 billion in 2009 even without additional CETC
designations in 2008 and 2009.
This growth is not only due to multiple providers receiving high-
cost support in many study areas, but also because CETCs receive
Universal Service support based on the incumbent LEC's embedded costs
or the per line support amount that the incumbent LEC receives. But as
we heard at the en banc, a CETC's actual costs are likely to be very
different, and perhaps lower, than the incumbent telephone carrier's
costs on a per line basis.
In light of those facts, the Joint Board reached a consensus that
immediate action was required to stabilize the high-cost fund. On May
1, 2007, the Joint Board issued a Recommended Decision advocating that
the Commission adopt an interim emergency cap on the amount of high-
cost support that CETCs may receive for each state based on 2006
support levels.\9\ The Commission issued a Public Notice seeking
comment on the Joint Board's recommendation on May 14, 2007. The
Commission received over 60 comments on June 6, 2007, and reply
comments are due June 13, 2007.
The Joint Board also recommended that both it and the Commission
further explore comprehensive high-cost distribution reform, and sought
comment on various reform proposals in a Public Notice released on the
same day as the Recommended Decision.\10\
The Recommended Decision and its companion Public Notice make clear
that the Joint Board is committed to making further recommendations
regarding comprehensive high-cost Universal Service reform by November
1, 2007. I am committed, as the Federal Chair, to putting the Joint
Board in a position to make those recommendations.
As we look to achieve the long-term goals of the Universal Service
program, we must balance the goal of encouraging competitive entry with
the other challenges, such as the further deployment of advanced
services. It is essential that we recognize how technological changes
are putting strains on the mechanics of our contribution and
distribution systems. As stewards of public funds, our obligation to
preserve and advance Universal Service mandates that we recommend
immediate action to stem the explosive growth in high-cost Universal
Service support disbursements, while doing all we can to achieve
fundamental reform to ensure that affordable, quality services are
available to consumers all across the country.
As Chair of the Joint Board, my goal has been to encourage
discussion among my colleagues and facilitate consensus that will
ensure that American consumers throughout the Nation continue to have
access to an evolving level of services. Every member of this Joint
Board supports the principles of Universal Service: to promote the
availability of quality services at just, reasonable, and affordable
rates; to increase access to advanced telecommunications services
throughout the Nation; and to advance the availability of such services
to all consumers. Our recommendation is a step toward more fully
implementing those principles. I look forward to working with my
Federal and state colleagues and with all stakeholders as we continue
to make progress.
Again, I appreciate your invitation to be here with you today. I am
pleased to answer any questions you may have.
Appendix A
Federal-State Joint Board of Universal Service Recommended Decision
Before the Federal Communications Commission
Washington, DC
In the Matter of High-Cost Universal Service Support
Federal-State Joint Board on Universal Service
WC Docket No. 05-337
CC Docket No. 96-45 Service
Recommended Decision
Adopted: April 26, 2007
Released: May 1, 2007
By the Federal-State Joint Board on Universal Service: Chairman
Martin, Commissioner Tate, Chairman Edgar, Commissioner Landis, and
Commissioner Burke issuing separate statements; Director Gregg
concurring; Commissioner Baum concurring and issuing a statement;
Commissioner Copps dissenting and issuing a statement.
I. Introduction
1. In this Recommended Decision, the Federal-State Joint Board on
Universal Service (Joint Board) recommends that the Commission take
immediate action to rein in the explosive growth in high-cost Universal
Service support disbursements. Specifically, we recommend that the
Commission impose an interim, emergency cap on the amount of high-cost
support that competitive eligible telecommunications carriers (ETCs)
may receive for each state based on the average level of competitive
ETC support distributed in that state in 2006.\11\ We also recommend
that the Joint Board and the Commission further explore comprehensive
high-cost distribution reform. As part of that effort, today in a
companion Public Notice we seek comment on various proposals to reform
the high-cost Universal Service support mechanisms.\12\ We also commit
to making further recommendations regarding comprehensive high-cost
Universal Service reform within 6 months of this Recommended Decision.
Finally, we recommend that the Commission act on these further
recommendations within 1 year from the date of our further Recommended
Decision.
II. Background
2. In 2002, the Commission asked the Joint Board to review certain
of the Commission's rules related to the high-cost Universal Service
support mechanisms.\13\ Among other things, the Commission asked the
Joint Board to review the Commission's rules relating to high-cost
Universal Service support in study areas in which a competitive ETC is
providing service.\14\ In response, the Joint Board made many
recommendations concerning the designation of ETCs in high-cost areas,
but declined to recommend that the Commission modify the basis of
support (i.e., the methodology used to calculate support) in study
areas with multiple ETCs.\15\ Instead, the Joint Board recommended that
it and the Commission consider possible modifications to the basis of
support for competitive ETCs as part of an overall review of the high-
cost support mechanisms for rural and non-rural carriers.\16\
3. In 2004, the Commission asked the Joint Board to review the
Commission's rules relating to the high-cost Universal Service support
mechanisms for rural carriers and to determine the appropriate rural
mechanism to succeed the plan adopted in the Rural Task Force
Order.\17\ In August 2004, the Joint Board sought comment on issues the
Commission referred to it related to the high-cost Universal Service
support mechanisms for rural carriers.\18\ The Joint Board also
specifically sought comment on the methodology for calculating support
for ETCs in competitive study areas.\19\ Since that time, the Joint
Board has sought comment on a variety of specific proposals for
addressing the issues of Universal Service support for rural carriers
and the basis of support for competitive ETCs, including proposals
developed by members and staff of the Joint Board and the use of
reverse auctions (competitive bidding) to determine high-cost Universal
Service funding to ETCs.\20\
III. Recommendation for an Immediate Interim Cap on Support for
Competitive Eligible Telecommunications Carriers
A. Need for Immediate Action
4. High-cost support has been rapidly increasing in recent years
and, without immediate action to restrain growth in competitive ETC
funding, the Federal Universal Service Fund is in dire jeopardy of
becoming unsustainable.\21\ Today, the Universal Service Fund provides
approximately $4 billion per year in high-cost support.\22\ Yet, in
2001 high-cost support totaled approximately $2.6 billion.\23\ In
recent years, this growth has been due to increased support provided to
competitive ETCs which receive high-cost support based on the per-line
support that the incumbent local exchange carriers (LECs) receive
rather than the competitive ETC's own costs. While support to incumbent
LECs has been flat or even declined since 2003,\24\ by contrast, in the
6 years from 2001 through 2006, competitive ETC support grew from $15
million to almost $1 billion--an annual growth rate of over 100
percent. Based on current estimates, competitive ETC support in 2007
will reach at least $1.28 billion if the Commission takes no action to
curtail this growth. Moreover, if the Commission were now to approve
all competitive ETC petitions currently pending before the Commission,
high-cost support for competitive ETCs could rise to as much as $1.56
billion in 2007.\25\ High-cost support to competitive ETCs is estimated
to grow to almost $2 billion in 2008 and $2.5 billion in 2009 even
without additional competitive ETC designations in 2008 and 2009.\26\
5. We conclude that immediate action must be taken to stem the
dramatic growth in high-cost support. We therefore recommend that the
Commission immediately impose an interim cap on high-cost support
provided to competitive ETCs until such measures can be adopted that
will ensure that the Fund will be sustainable for future years. We
believe that taking this action will prevent increases in high-cost
support due to the designation of additional competitive ETCs or line
growth among existing competitive ETCs. While imposition of the interim
cap will not address the current disproportionate distribution of
competitive ETC support among the states,\27\ the cap will stop growth
in competitive ETC support while the Joint Board and the Commission
consider fundamental reforms to address issues related to the
distribution of support. At this time, we do not recommend additional
caps on support provided to incumbent LECs, because the data show less
growth pressure from incumbent LECs. Moreover, incumbent LEC high-cost
loop support is already capped and incumbent interstate access support
has a targeted limit.\28\ Also, local switching support and interstate
common line support provided to incumbent LECs have been stable in
recent years.\29\ Accordingly, we recommend that the Commission
immediately impose an interim high-cost support cap, but one that is
limited to high-cost support provided to competitive ETCs.
6. We believe that adopting an interim cap on high-cost support
only for competitive ETCs would not violate the Commission's Universal
Service principle of competitive neutrality for several reasons.\30\
Fundamental differences exist between the regulatory treatment of
competitive ETCs and incumbent LECs. For example, competitive ETCs,
unlike incumbent LECs, have no equal access obligations. Competitive
ETCs also are not subject to rate regulation. In addition, competitive
ETCs may not have the same carrier of last resort obligations that
incumbent LECs have. Furthermore, under the identical support rule,
both incumbent rural LECs and competitive ETCs receive support based on
the incumbent rural LECs' costs. Therefore, incumbent rural LECs'
support is cost-based, while competitive ETCs' support is not. Due to
this, as discussed below, we recommend that the Commission consider
abandoning the identical support rule in any comprehensive and
fundamental reform ultimately adopted.\31\
7. We decline to recommend that the Commission adopt General
Communication Inc.'s (GCI) proposal that we exempt wireline competitive
ETCs from the cap.\32\ The growth of support to wireless competitive
ETCs may indeed have been much greater than the growth of support to
wireline competitive ETCs. However, we recommend a cap today largely
because we conclude that the identical support rule has become dated
and may no longer be the most appropriate approach to calculating
support for competitive ETCs. Today wireline competitive ETCs (such as
GCI) and wireless competitive ETCs both derive their Universal Service
support from the identical support rule. Neither receives support based
on its own costs. In addition, GCI would have us create an exemption
based upon the ETC's chosen technology, rather than its legal status.
We are not aware of anything in the Commission's current rules that
provides a precedent for such a technology-based differentiation within
Universal Service policy.
B. Length of Time
8. We emphasize that the cap on competitive ETC support that we
recommend here should be an interim measure that is used to stem the
growing crisis in high-cost support growth while the Commission and the
Joint Board consider further reform. We remain committed to
comprehensive reform of the high-cost Universal Service support
mechanisms. Accordingly, we recommend that the Commission immediately
adopt an interim cap on high-cost support to competitive ETCs, and that
the cap expire 1 year from the date of any Joint Board recommended
decision on comprehensive and fundamental Universal Service reform. As
discussed below, we commit to adoption of a further recommended
decision addressing fundamental high-cost reforms within 6 months of
today's Recommended Decision. We also anticipate that the Commission
will act promptly on the Joint Board's subsequent recommended decision
in light of the interim nature of the cap, notwithstanding the fact
that the Communications Act of 1934, as amended (the Act) imposes a
one-year time limit on such action.\33\
C. Operation of the Cap
9. We recommend that the Commission immediately impose a cap on
competitive ETC support for each state. We believe that a competitive
ETC cap applied at a state level effectively curbs growth but allows
states some flexibility to direct competitive ETC support to the areas
in the state that are most in need of such support.\34\ An interim,
state-based cap on competitive ETC support will also avoid creating an
incentive for each state to designate as many new ETCs as possible. A
state-based cap will require newly designated competitive ETCs to share
funding with other competitive ETCs within the state.
10. Under the proposed state-based cap, support would be calculated
using a two-step approach. First, on a quarterly basis, the Universal
Service Administrative Company (USAC) would calculate the support each
competitive ETC would have received under the existing (uncapped) equal
per-line support rule and would sum these amounts by state.\35\ Second,
USAC would calculate a state reduction factor to reduce this amount to
the competitive ETC cap. Specifically, USAC would compare the total
amount of uncapped support to the cap amount for each state. Where the
total state uncapped support is greater than the available state cap
support amount, USAC would divide the state cap support amount by the
total state uncapped amount to yield the state reduction factor. USAC
would then apply the state-specific reduction factor to the uncapped
amount for each competitive ETC within the state to arrive at the
capped level of high-cost support. Where the state uncapped support is
less than the available state capped support amount, no reduction would
be required.
11. For example, if in State A, the capped amount is $90 million
and the total uncapped support is $130 million, the reduction factor
would be 69.2 percent ($90/$130). In State A, each competitive ETC's
support would be multiplied by 69.2 percent to reduce support to the
capped amount. If in State B, however, the base period capped amount is
$100 million and the total uncapped support is $95 million, there would
be no reduction factor because the uncapped amount is less than the
capped amount. Each quarter, for the duration of the cap, a new
reduction factor would be calculated for each state. Finally, if in
State C the base period capped amount is $0 (i.e., there were no
competitive ETCs receiving support in State C as of when the cap was
established), then no competitive ETCs would be eligible to receive
support in that state.
12. Although the competitive ETC cap retains the so-called
identical support or portability rule in the first step of calculating
capped support amounts, the Joint Board recommends that the Commission
consider abandoning or modifying this rule in any comprehensive reform
it ultimately adopts. The identical support rule seems to be one of the
primary causes of the explosive growth in the fund. Most of the reform
options that we seek comment on in today's companion Public Notice
would replace this approach with approaches that better reflect the
economic realities of different technologies.\36\ Thus, we recommend
that the Commission expressly place competitive ETCs on notice that
identical support without cost justification may be an outdated
approach to USF funding.
D. Base Period for the Cap
13. We recommend that the Commission cap competitive ETC support
for each state at the level of competitive ETC support actually
distributed in that state in 2006. Although this approach likely
results in a lower cap in most jurisdictions than the level of support
that is being distributed in 2007, we find that the need for adopting
this emergency interim cap to stabilize support for competitive ETCs
identified above justifies using 2006 support levels.\37\ Moreover,
using 2006 data allows the Commission to use actual support amounts,
rather than relying on USAC projections to set the cap amounts. By
using actual distributions over four quarters of 2006, the Commission
will be able to smooth out any seasonal or one-time fluctuations that
may be reflected in any single quarter.\38\ Consistent with our
recommendation to cap competitive ETC support on an interim basis, we
find that there is no need to index the cap to a growth factor.
IV. Fundamental High-Cost Distribution Reform
14. The imposition of an interim cap on competitive ETC high-cost
support represents only a temporary solution to the problems that
plague the high-cost support distribution mechanisms. As noted above,
we are committed to making further recommendations regarding
comprehensive high-cost Universal Service reform within 6 months. So
that we may accomplish that goal, we seek comment, in a companion
Public Notice, on several proposals that have been placed in the record
since the close of the last comment cycle, as well as other possible
reforms.\39\ Specifically, we seek comment on proposals related to the
use of reverse auctions, the use of geographic information systems
(GIS) technology, the disaggregation of high-cost support, and support
for broadband services.\40\ As we state in the Public Notice, we expect
parties to submit comprehensive reform proposals pursuant to the
pleading cycle set forth in the Public Notice.\41\
V. Recommending Clause
15. For the reasons discussed herein, the Federal-State Joint Board
on Universal Service, pursuant to sections 254(a)(1) and 410(c) of the
Communications Act of 1934, as amended, 47 U.S.C. 254(a)(1), 410(c),
recommends that the Commission adopt recommendations set forth herein
concerning an interim cap on high-cost Universal Service support for
competitive ETCs.
Federal Communications Commission
Marlene H. Dortch, Secretary
Appendix A
Charts Presented by Chairman Martin at February 2007 En Banc Hearing of
the Federal-State Joint Board on Universal Service
Chart 1
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Chart 2
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Chart 3
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Chart 4
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Appendix B
State High-Cost Universal Service Support, Ranked by 2006 Total Support
and 2006 Competitive ETC Support
------------------------------------------------------------------------
2006
Incumbent 2006 2006
Ranked by 2006 Total Support ETC Competitive Total
Support ETC Support Support
------------------------------------------------------------------------
State $ Millions
------------------------------------------------------------------------
1 Mississippi 136.4 139.6 276.0
2 Texas 206.1 24.6 230.7
3 Kansas 135.4 54.8 190.2
4 Alaska 98.1 55.5 153.6
5 Wisconsin 83.0 51.2 134.2
6 Arkansas 101.9 30.6 132.5
7 Louisiana 85.1 41.9 127.0
8 Oklahoma 107.0 16.6 123.6
9 Puerto Rico 29.5 93.9 123.4
10 Minnesota 79.6 40.3 119.9
11 Alabama 99.6 16.4 116.0
12 Georgia 99.1 8.6 107.7
13 California 105.0 1.0 106.0
14 Iowa 63.4 42.2 105.6
15 Washington 58.9 43.8 102.7
16 Kentucky 73.4 25.9 99.3
17 South Dakota 60.1 29.4 89.5
18 Missouri 86.0 0.1 86.1
19 Arizona 67.1 15.9 83.0
20 South Carolina 81.9 0.0 81.9
21 Nebraska 58.3 23.5 81.8
22 Florida 72.2 9.4 81.6
23 North Carolina 74.0 7.4 81.4
24 North Dakota 41.4 39.5 80.9
25 Colorado 71.0 8.5 79.5
26 Virginia 65.7 13.8 79.5
27 Montana 66.6 11.5 78.1
28 Oregon 62.3 10.0 72.3
29 West Virginia 59.7 10.7 70.4
30 Illinois 67.8 0.0 67.8
31 New Mexico 50.3 15.2 65.5
32 Pennsylvania 64.0 1.5 65.5
33 Indiana 57.9 5.6 63.5
34 Michigan 43.8 15.1 58.9
35 Wyoming 39.7 18.0 57.7
36 Idaho 52.1 0.0 52.1
37 Tennessee 50.3 1.5 51.8
38 New York 45.6 3.3 48.9
39 Ohio 41.6 0.0 41.6
40 Hawaii 22.6 18.2 40.8
41 Maine 23.8 13.2 37.0
42 Nevada 24.9 6.3 31.2
43 Vermont 24.9 5.9 30.8
44 Virgin Islands 25.3 0.0 25.3
45 Utah 23.9 0.3 24.2
46 Guam 9.4 7.3 16.7
47 New Hampshire 7.8 0.3 8.1
48 Maryland 4.5 0.0 4.5
49 Massachusetts 2.8 0.0 2.8
50 American Samoa 1.3 1.4 2.7
51 Connecticut 2.1 0.0 2.1
52 New Jersey 1.3 0.0 1.3
53 N. Mariana Is. 0.6 0.2 0.8
54 Delaware 0.3 0.0 0.3
55 D.C. 0.0 0.0 0.0
56 Rhode Island 0.0 0.0 0.0
------------------------------------------------------------------------
Total 3,116.4 979.9 4,096.3
------------------------------------------------------------------------
Note: Numbers may not add due to rounding. Annual support amounts less
than $50,000 show as $0 due to rounding.
Source: Universal Service Administrative Company
------------------------------------------------------------------------
Ranked by 2006 CETC Support 2006
--------------------------------------------------------- Competitive
ETC Support
State ---------------
$ Millions
------------------------------------------------------------------------
1 Mississippi 139.6
2 Puerto Rico 93.9
3 Alaska 55.5
4 Kansas 54.8
5 Wisconsin 51.2
6 Washington 43.8
7 Iowa 42.2
8 Louisiana 41.9
9 Minnesota 40.3
10 North Dakota 39.5
11 Arkansas 30.6
12 South Dakota 29.4
13 Kentucky 25.9
14 Texas 24.6
15 Nebraska 23.5
16 Hawaii 18.2
17 Wyoming 18.0
18 Oklahoma 16.6
19 Alabama 16.4
20 Arizona 15.9
21 New Mexico 15.2
22 Michigan 15.1
23 Virginia 13.8
24 Maine 13.2
25 Montana 11.5
26 West Virginia 10.7
27 Oregon 10.0
28 Florida 9.4
29 Georgia 8.6
30 Colorado 8.5
31 North Carolina 7.4
32 Guam 7.3
33 Nevada 6.3
34 Vermont 5.9
35 Indiana 5.6
36 New York 3.3
37 Pennsylvania 1.5
38 Tennessee 1.5
39 American Samoa 1.4
40 California 1.0
41 New Hampshire 0.3
42 Utah 0.3
43 N. Mariana Is. 0.2
44 Missouri 0.1
45 Connecticut 0.0
46 D.C. 0.0
47 Delaware 0.0
48 Idaho 0.0
49 Illinois 0.0
50 Maryland 0.0
51 Massachusetts 0.0
52 New Jersey 0.0
53 Ohio 0.0
54 Rhode Island 0.0
55 South Carolina 0.0
56 Virgin Islands 0.0
------------------------------------------------------------------------
Total 979.9
------------------------------------------------------------------------
Note: Numbers may not add due to rounding. Annual support amounts less
than $50,000 show as $0 due to rounding.
Source: Universal Service Administrative Company
Statement of Chairman Kevin J. Martin
In the Matter of High-Cost Universal Service Support, WC Docket No. 05-
337;
Federal-State Joint Board on Universal Service, CC Docket No.
96-45
I am pleased that the Federal-State Joint Board on Universal
Service recommends measures to the Commission to address the rapid
growth in the high-cost Universal Service program. It is essential that
we take actions that preserve and advance the benefits of the Universal
Service program.
The United States and the Commission have a long history and
tradition of making sure that rural areas of the country are connected
and have similar opportunities for communications as other areas. I
believe our Universal Service program must continue to promote
investment in rural America's infrastructure and ensure access to
telecommunications services that are comparable to those available in
urban areas today, as well as provide a platform for delivery of
advanced services.
Changes in technology and increases in the number of carriers that
receive Universal Service support, however, have placed significant
pressure on the stability of the Fund. A large and rapidly growing
portion of the high-cost support program is now devoted to supporting
multiple competitors to serve areas in which costs are prohibitively
expensive for even one carrier. These additional networks in high-cost
areas don't receive support based on their own costs, but rather on the
costs of the incumbent provider, even if their cost of providing
service is lower. The Recommended Decision emphasizes the problems of
maintaining the equal support rule. The recommendation also caps
competitive ETC funding to address the escalating impact of this
problem. I would argue that if a competitive ETC can demonstrate that
its costs meet the support threshold in the same manner as the rural
provider, the competitive ETC should receive support, despite the cap.
Thus, a preferable rule would be to cap those providers that do not
receive support based on their own costs.
Today's recommendation is not an end in itself, but rather signals
the need for comprehensive reform. Among the reform ideas the Joint
Board continues to consider is the use of reverse auctions (competitive
bidding for support in defined areas) to determine high-cost Universal
Service funding for eligible telecommunications carriers. I believe
that reverse auctions could provide a technologically and competitively
neutral means of controlling the current unsustainable growth in the
Fund and ensuring a move to most efficient technology over time.
Although the use of reverse auctions is one way of limiting the growth
of the fund, I will give any recommendation submitted by the Joint
Board my full consideration and remain open to other ideas that could
restrain fund growth and prioritize investment in rural and high-cost
areas of the country.
I look forward to working with my colleagues at the Commission to
address the Joint Board recommendation in a timely manner. I also look
forward to a continued dialogue with my Joint Board colleagues as the
Joint Board continues to address comprehensive and fundamental reform.
Statement of Commissioner Deborah Taylor Tate
In the Matter of High-Cost Universal Service Support, WC Docket No. 05-
337;
Federal-State Joint Board on Universal Service, CC Docket No.
96-45
Congress directed the Commission to institute the Federal-State
Joint Board on Universal Service so that the Joint Board could
recommend necessary changes to the Commission's regulations. As
stewards of public funds, our obligation to preserve and advance
Universal Service mandates that we recommend immediate changes to stem
the explosive growth in high-cost Universal Service support
disbursements. I am proud of the consensus achieved by this Joint Board
in fulfillment of its duties.
This interim action is just that: interim. As the Recommended
Decision and its companion Public Notice make clear, the Joint Board is
committed to making further recommendations regarding comprehensive
high-cost Universal Service reform within 6 months of this Recommended
Decision. I am committed, as the Federal Chair, to putting the Joint
Board in a position to make those recommendations.
Every member of this Joint Board supports the principles of
Universal Service: to promote the availability of quality services at
just, reasonable, and affordable rates; to increase access to advanced
telecommunications services throughout the Nation; and to advance the
availability of such services to all consumers. Our recommendation
today is a step toward more fully implementing those principles. I look
forward to working with my Federal and state colleagues and with all
stakeholders as we continue to make progress.
Concurring Statement of Chairman Lisa Polak Edgar
In the Matter of High-Cost Universal Service Support, WC Docket No. 05-
337;
Federal-State Joint Board on Universal Service, CC Docket No.
96-45
I support the Recommended Decision and the accompanying Public
Notice.
Rapid growth in the Universal Service High-Cost Fund is placing
unprecedented financial pressure on consumers of telecommunications
services and the Federal-State Joint Board on Universal Service today
takes a necessary step to address that unplanned and exceptional
growth.
The cap detailed in today's Recommended Decision is an interim
step, meant to create a pause in fund growth while a more equitable and
comprehensive distribution mechanism can be crafted. The current
support mechanisms must be reformed to reduce excessive support to
multiple providers and better target financial support as envisioned by
the Telecommunications Act of 1996. Funding redundant providers is
particularly troubling for consumers in net-contributor states, who
shoulder the burden of undue growth in the high-cost fund. Therefore, I
share my colleagues urgency in addressing a comprehensive reform of the
high-cost distribution mechanism that adheres to the goals of Universal
Service.
Statement of Commissioner Larry S. Landis
In the Matter of High-Cost Universal Service Support, WC Docket No. 05-
337;
Federal-State Joint Board on Universal Service, CC Docket No.
96-45
In recent weeks, the bulk of the attention by various parties
offering ex parte comments in this proceeding has been devoted to
certain anticipated aspects of the proposed interim emergency cap which
is addressed in today's Recommended Decision. I can appreciate the
concern of various parties with regard to how (without knowing the
exact parameters of the proposed cap) it might impact them. Much has
been said and written about the need for competitively and
technologically neutral policies, disregarding the fact that in some
respects the current regime is anything but.
The basic facts are inescapable, as set forth in the Recommended
Decision. Growth in high-cost support on the current trend line is
unsustainable. A number of proposals were offered in ex parte filings
as alternatives, with the intent of ``sharing the pain'' among various
groups of providers. Those proposals fail to address the fact that for
most segments, growth has been virtually flat or even modestly negative
in the short run; there is only one group of providers which have seen
dramatic and continued growth, and that group is wireless CETCs.
To use an analogy, if you are offering emergency medical treatment
to a badly injured person who is bleeding profusely from the arm, you
don't address the short-term problem by applying a tourniquet to the
patient's leg. Having said that, a tourniquet is not a long-term or
permanent solution, and neither is the interim emergency cap.
While the growth is attributable to CETCs, most of which are
wireless carriers, they are simply operating under the current laws and
rules, once they have received ETC designation. Over the course of the
past several months, I have come to a greater appreciation of the
extent to which there are wireless companies which operate on a
business model targeted primarily to serving rural areas, and which
contribute significantly to realizing the goal of providing truly
Universal Service to areas where costs are such that no business case
can be made for build-out, absent Universal Service support.
At the same time, there are many rural areas where multiple
wireless providers are active. Where there is already competition, we
need to make sure we don't inadvertently advantage one company over the
others which entered that market based on a competitive, unsubsidized
model. Indeed, it may be time to ask if the presence of some minimum
number of competitors greater than one in a market is a prima facie
indicator that the market is contestable and competitive, and that no
Universal Service support should be rendered to the competing providers
in that market.
The states have an obligation and a growing partner role with the
FCC as joint stewards in seeing to it that Universal Service funds are
appropriately deployed, that legitimate needs are met, but that
accountability and performance are audited and demanded.
Now that the interim Recommended Decision has been approved by this
body, it is my hope that we can move on to the far more significant and
far-reaching issues and potential solutions addressed in the companion
Request for Comment.
The Request for Comment raises the question of whether the Joint
Board and the Commission should consider adding broadband to the list
of supported services. It is my hope that the parties will examine not
only the threshold questions (is penetration sufficient for broadband
to qualify as a supported service?) but also, if they conclude that
broadband should be a supported service, how that can best and most
efficiently be implemented. What are the appropriate threshold funding
obligations of providers? Of the several states, including (but not
limited to) state funds and other incentives? And of the high-cost
funds? These potential interrelationships require closer examination.
Finally, I appreciate the concerns of those who have suggested that
the interim emergency cap will somehow morph into an intermediate or
long-term default ``patch'' to the issues we propose to examine. By
explicitly committing to making further recommendations regarding long
term, comprehensive high-cost Universal Service reform within 6 months,
and by proposing that the cap expire 1 year from the date when such
recommendations are offered, I hope that we have convinced interested
parties that the Joint Board is determined to address those long term
issues in a meaningful, thoughtful and aggressive manner.
If we are to do so, we will need to build a record which is
considerably more comprehensive and provides greater granularity than
that which we have today. Interested parties simply need to move with
dispatch. The clock is running for all parties with an interest in the
outcome of this deliberation. As such, the record will be only as
robust as the parties make it.
Statement of Commissioner John Burke
In the Matter of High-Cost Universal Service Support, WC Docket No. 05-
337;
Federal-State Joint Board on Universal Service, CC Docket No.
96-45
I agree with my colleagues on the USF Joint Board as to today's
Recommended Decision. I would stress the need for a comprehensive
solution to be finally adopted by the FCC at the earliest possible
date.
Some inequities could result from any cap but inequities
undoubtedly already exist at least in part because of the identical
support rule as presently applied. I would hope then that the cap never
be extended beyond the 18 month period contemplated as the outside
margin of this recommendation for development and adoption of these
more comprehensive reforms
Concurring Statement of Commissioner Ray Baum
In the Matter of High-Cost Universal Service Support, WC Docket No. 05-
337;
Federal-State Joint Board on Universal Service, CC Docket No.
96-45
In concurring with today's interim decision capping the CETC
portion of the fund, I would like to emphasize the following:
1. I underscore that today's decision is interim. The Joint
Board intends to recommend major reform of the USF to the FCC
within 6 months of the date of this decision. Parties should
file their comments in response to the accompanying Public
Notice within the comment periods. Parties who wait to put
forward their proposals in ex parte submissions will jeopardize
their consideration. The Joint Board intends to move
expeditiously, and takes seriously the 6 month deadline for
recommending major reform.
2. My support for a cap of this nature is limited to the 18
months outlined in today's decision. In several states, there
are high-cost rural service areas that had no CETC drawing USF
support during the interim cap's 2006 base period. As a result
of the cap, consumers in these rural areas may not enjoy the
same quality and reliability of service that is enjoyed by
rural consumers in states with earlier CETC designations. The
CETC portion of the Fund is now disproportionately allocated
among rural consumers and states. This cap does not remedy that
inequity.
3. Broadband is critical to telecommunications/information
services of the future, for both rural and urban Americans.
Rural ILECs have generally done a good job of making broadband
available to the rural consumers they serve; non-rural ILECs
generally have not. The Joint Board and commenting parties
should address whether this inequity can be remedied by
properly focused incentives to ETCs, both wireline and
wireless, to provide necessary broadband services to all rural
consumers.
4. Due to unsustainable growth pressures on the Fund all ETCs
should anticipate changes to current USF distribution
mechanisms. The identical support rule for CETCs may not
survive. Rural ILECs may no longer receive support based on
their embedded costs. All parties should use the forthcoming
comment periods to put forth their best ideas, describing in
detail how they are to be implemented.
The Joint Board faces difficult decisions in the next 6 months. The
best efforts of all parties in filing comments to assist the Joint
Board is essential and appreciated.
Dissenting Statement of Commissioner Michael J. Copps
In the Matter of High-Cost Universal Service Support, WC Docket No. 05-
337;
Federal-State Joint Board on Universal Service, CC Docket No.
96-45
Congress made clear what it expected of the Federal-State Joint
Board on Universal Service in section 254 of the Communications Act:
the Board shall recommend policies to preserve and advance Universal
Service. Since I rejoined the Joint Board over 2 years ago, my
colleagues and I have worked with this singular purpose in mind. As
anyone who toils in the field of Universal Service knows, there are
many worthy ideas on how to achieve the purposes set forth in the Act.
Today the Joint Board recommends that the FCC impose a so-called
``interim, emergency cap'' on the high-cost support available to
competitive eligible telecommunications carriers. While I commend my
colleagues for their good intentions--to curb the growth of the
Universal Service Fund--I have serious concerns that such a cap will be
misinterpreted as a solution, even though it does not address--or
pretend to address--the fundamental, comprehensive reforms needed to
carry a viable and improved system of Universal Service forward in the
twenty-first century.
The clear and compelling challenge to the Joint Board and the FCC
is to bring basic and advanced telecommunications to all our citizens
and to ensure that our Universal Service system, which has accomplished
so much, can continue to sustain itself. Our job is to develop
strategies and programs to bring the best, most accessible and cost-
effective communications system in the world to all our people--and
Universal Service does indeed mean ``all'' our people. Every citizen of
this great country should have access to the wonders of
communications--whether they live on farms or rural hamlets, on tribal
lands or in the inner city; whether they have limited income or are
challenged by disabilities; whether they are schoolchildren or rural
healthcare providers.
Universal service has done great things for America. But its job is
far--very far--from complete. Revolutionary changes are transforming
the world of telecommunications, but not all of us will be able to
benefit from them without significant Universal Service system reforms.
We have studied these problems for a very long time. Hundreds of
discussions have taken place. Ideas have been exchanged. Solutions have
been proposed. The problem is that the solutions are not painless.
Companies and government both get comfortable with business as usual,
and when someone proposes to rock the boat we all get nervous. Game
theory supersedes decisionmaking--and nothing gets done. Yet reality
keeps knocking at the door: the system is stressed; down the present
path it may not be sustainable; it still marches to the tune of 20th
century telecom. And there is this: we may all be called on for shared
sacrifice if Universal Service is going to fulfill its mission.
I believe we have it within our ability--and within our grasp--to
resolve our current Universal Service Fund problems and to deploy a
system that can contribute mightily to economic opportunity for all our
citizens and to truly expansive economic growth for our country. This
modernized Universal Service system would ensure that every citizen in
our country is connected to vital education, public health, public
safety, employment and entrepreneurial opportunities.
But we don't have the luxury of time to get this right. That is why
I believe today's recommendation misses the mark--it puts too many
issues off to another day. It's risky business.
The Joint Board has two major referrals before it, one dating to
2002 and the other to 2004. These are complicated referrals, to be
sure, but it is nevertheless entirely possible to come forward with
recommendations on the outstanding issues with which we are all
familiar. Instead the Joint Board proposes an interim, emergency cap
that solves no enduring problem and that will be interpreted by many as
movement enough to justify putting the larger Universal Service reform
imperative on the back-burner. I fear today's action diminishes rather
than enhances the prospects for near or even mid-term reform.
In the best-case scenario under the proposed cap, even if the Joint
Board acts within 6 months on fundamental reforms and the FCC then
proceeds to adopt some version of those reforms in a year, it will be
18 months--autumn of 2008--before we even have a strategic long-term
plan from the FCC for Universal Service reform. If the past is
prologue, coming to FCC consensus may take far longer than that, not to
mention any legislative changes that may be suggested.
Frankly, I worry that an emergency, interim cap inflames discord
and disagreement among industry sectors at a time when we should be
bringing everyone to the table to develop as much consensus as we can.
I don't see the need to poison the well when we could all be drinking
from the same cup. Others have expressed concerns that this emergency
action could lead to extended litigation and to putting into play
concerns about the lack of technology neutrality that some see in this
proposal.
It is not just the pressure on the Universal Service Fund that
compels action. It is even more the pressure from our country's grossly
inadequate under-performance in getting advanced telecommunications out
to all our citizens. Just last week, the OECD moved the United States
down three more spots in its broadband rankings--now your country and
mine is Number 15. Some are attempting to impugn the rankings or to say
that, even if true, it is good news that other countries are moving
forward so quickly! These comments and claims are lame attempts to mask
a national embarrassment. Universal service has a huge role to play in
correcting our course and moving us back toward the top where the
United States always belongs.
This is why it is so incumbent upon us to get comprehensive Joint
Board recommendations to the Commission expeditiously and then for the
Commission to act. We need to act not just because informed action will
move us up the rankings, but because of what our country's poor
performance means in terms of a continuing, perhaps even worsening,
rural-urban digital gap and in terms of economic opportunities foregone
for individuals, communities and businesses all across America.
The Joint Board is filled with uncommon knowledge, expertise and
good judgment. It has most of the information, data, and analysis that
it needs, right now, to move ahead to propose needed repairs and
modernization for Universal Service. I will be in the minority with my
vote today. Still, I look forward to working with my colleagues and
friends on the Joint Board and the Commission to move the ball forward
on the new field we have designed. To them and to all the millions of
stakeholders in this work, I pledge my full participation and
cooperation to move ahead as speedily as possible to expedite and
complete the Joint Board's work.
Endnotes
\1\ See Federal-State Joint Board on Universal Service, CC Docket
No. 96-45, Order, 17 FCC Rcd 22642 (2002).
\2\ Id.
\3\ See Federal-State Joint Board on Universal Service, CC Docket
No. 96-45, Recommended Decision, 19 FCC Rcd 4257 (2004).
\4\ Id. At 4294, para. 88.
\5\ See Federal-State Joint Board on Universal Service, CC Docket
No. 96-45, Order, 19 FCC Rcd 11538, para. 1 (2004) (Rural Referral
Order); Federal-State Joint Board on Universal Service, CC Docket No.
96-45, Fourteenth Report and Order and Twenty-Second Order on
Reconsideration, Multi-Association Group (MAG) Plan for Regulation of
Interstate Services of Non-Price Cap Incumbent Local Exchange Carriers
and Interexchange Carriers, CC Docket No. 00-256, Report and Order, 16
FCC Rcd 11244, 11268-70 (2001) (Rural Task Force Order); see also
Federal-State Joint Board on Universal Service; High-Cost Universal
Service Support, CC Docket No. 96-45, WC Docket No. 05-337, Order, 21
FCC Rcd 5514 (2006) (extending Rural Task Force plan).
\6\ See Federal-State Joint Board on Universal Service Seeks
Comment on Certain of the Commission's Rules Relating to High-Cost
Universal Service Support, CC Docket No. 96-45, Public Notice, 19 FCC
Rcd 16083 (2004).
\7\ See id. At 16094, paras. 36-37.
\8\ See Federal State Joint Board on Universal Service Seeks
Comment on Proposals to Modify the Commission's Rules Relating to High-
Cost Universal Service Support, CC Docket No. 96-45, Public Notice, 20
FCC Rcd 14267 (2005); Federal-State Joint Board on Universal Service
Seeks Comment on the Merits of Using Auctions to Determine High-Cost
Universal Service Support, WC Docket No. 05-337, Public Notice, 21 FCC
Rcd 9292 (2006).
\9\ Federal-State Joint Board on Universal Service, WC Docket No.
05-337, CC Docket No. 96-45, Recommended Decision, FCC 07J-1 (Fed.-
State Jt. Bd., rel. May 1, 2007) (Recommended Decision) (attached as
Appendix A).
\10\ Specifically, the Joint Board sought comment on proposals,
including the use of reverse auctions to determine high-cost Universal
Service support; the use of geographic information systems technology
and network cost modeling to better calculate and target support at
more granular levels; disaggregation of support below the study area or
wire center level; the methodology for calculating support for CETCs;
and whether Universal Service funding should be used to promote
broadband deployment directly. Federal-State Joint Board on Universal
Service Seeks Comment on Long Term, Comprehensive High-Cost Universal
Service Reform, WC Docket No. 05-337, CC Docket No. 96-45, Public
Notice, FCC 07J-2 (Fed.-State Jt. Bd., rel. May 1, 2007).
\11\ The interim cap will apply to all of the existing high-cost
support mechanisms: high-cost loop support (including safety net
support and safety valve support), local switching support, high-cost
model support, interstate common line support, and interstate access
support.
\12\ Federal-State Joint Board on Universal Service Seeks Comment
on Long Term, Comprehensive High-Cost Universal Service Reform, WC
Docket 05-337, CC Docket No. 96-45, Public Notice, FCC 07J-2 (rel. May
1, 2007) (May 2007 Public Notice).
\13\ See Federal-State Joint Board on Universal Service, CC Docket
No. 96-45, Order, 17 FCC Rcd 22642 (2002).
\14\ Id.
\15\ See Federal-State Joint Board on Universal Service, CC Docket
No. 96-45, Recommended Decision, 19 FCC Rcd 4257 (2004).
\16\ Id. At 4294, para. 88.
\17\ See Federal-State Joint Board on Universal Service, CC Docket
No. 96-45, Order, 19 FCC Rcd 11538, para. 1 (2004) (Rural Referral
Order); Federal-State Joint Board on Universal Service, CC Docket No.
96-45, Fourteenth Report and Order and Twenty-Second Order on
Reconsideration, Multi-Association Group (MAG) Plan for Regulation of
Interstate Services of Non-Price Cap Incumbent Local Exchange Carriers
and Interexchange Carriers, CC Docket No. 00-256, Report and Order, 16
FCC Rcd 11244, 11268-70 (2001) (Rural Task Force Order); see also
Federal-State Joint Board on Universal Service; High-Cost Universal
Service Support, CC Docket No. 96-45, WC Docket No. 05-337, Order, 21
FCC Rcd 5514 (2006) (extending Rural Task Force plan).
\18\ See Federal-State Joint Board on Universal Service Seeks
Comment on Certain of the Commission's Rules Relating to High-Cost
Universal Service Support, CC Docket No. 96-45, Public Notice, 19 FCC
Rcd 16083 (2004).
\19\ See id. At 16094, paras. 36-37.
\20\ See Federal State Joint Board on Universal Service Seeks
Comment on Proposals to Modify the Commission's Rules Relating to High-
Cost Universal Service Support, CC Docket No. 96-45, Public Notice, 20
FCC Rcd 14267 (2005); Federal-State Joint Board on Universal Service
Seeks Comment on the Merits of Using Auctions to Determine High-Cost
Universal Service Support, WC Docket No. 05-337, Public Notice, 21 FCC
Rcd 9292 (2006). In February 2007, the Joint Board held an en banc
hearing to discuss high-cost Universal Service support in rural areas,
including the use of reverse auctions and geographic information
systems (GIS) to determine support for eligible telecommunications
carriers. See Federal-State Joint Board on Universal Service to Hold En
Banc Hearing on High-Cost Universal Service Support in Areas Served by
Rural Carriers, WC Docket No. 05-337, Public Notice, 22 FCC Rcd 2545
(2007).
\21\ The most recent contribution factor is 11.7 percent, which is
the highest level since its inception. See Proposed Second Quarter 2007
Universal Service Contribution Factor, CC Docket No. 96-45, Public
Notice, 20 FCC Rcd 5074 (2007).
\22\ See Universal Service Monitoring Report, CC Docket No. 98-202,
Prepared by the Federal and State Staff for the Federal-State Joint
Board on Universal Service in CC Docket No. 96-45, Table 3.2 (2006)
(Universal Service Monitoring Report).
\23\ Id.
\24\ In 2001, much of the growth in high-cost support was
attributable to removing implicit subsidies from access charges and the
inclusion of these amounts in explicit Universal Service mechanisms
adopted in the CALLS Order and the MAG Plan Order. See Access Charge
Reform, Price Cap Performance Review for Local Exchange Carriers, CC
Docket Nos. 96-262 and 94-1, Sixth Report and Order, Low-Volume Long-
Distance Users, CC Docket No. 99-249, Report and Order, Federal-State
Joint Board on Universal Service, CC Docket No. 96-45, Eleventh Report
and Order, 15 FCC Rcd 12962 (2000) (CALLS Order); Multi-Association
Group (MAG) Plan for Regulation of Interstate Services of Non-Price Cap
Incumbent Local Exchange Carriers and Interexchange Carriers in CC
Docket No. 00-256, Federal-State Joint Board on Universal Service in CC
Docket No. 96-45, Access Charge Reform for Incumbent Local Exchange
Carriers Subject to Rate-of-Return Regulation in CC Docket No. 98-77,
Prescribing the Authorized Rate of Return From Interstate Services of
Local Exchange Carriers in CC Docket No. 98-166, Second Report and
Order and Further Notice of Proposed Rulemaking, Fifteenth Report and
Order, and Report and Order, 16 FCC Rcd 19613 (2001) (MAG Plan Order),
recon. pending.
\25\ This estimate does not include the effect of states granting
any of the more than 30 competitive ETC petitions that are pending in
various state jurisdictions.
\26\ Recently, several parties have submitted filings highlighting
the need for the Commission and the Joint Board to take immediate
action to bring the growth of the high-cost fund under control. See
e.g., Letter from Mary L. Henze, Senior Director Federal Regulatory,
AT&T, to Marlene Dortch, Secretary, FCC (dated March 22, 2007);
Kathleen Grillo, Vice President Federal Regulatory, Verizon, to Deborah
Taylor Tate, Federal Chair and Ray Baum, State Chair, Federal-State
Joint Board on Universal Service (dated Feb. 9, 2007); see also
Appendix A (charts presented by Chairman Martin at the February 2007 En
Banc Hearing of the Joint Board, demonstrating growth of competitive
ETC support and its consequences).
\27\ For example, four states and Puerto Rico receive forty percent
of the total support distributed to competitive ETCs, and ten states
receive almost sixty percent of competitive ETC support. As shown in
the attached table, many states receive little or no competitive ETC
support. See Appendix B.
\28\ See 47 C.F.R. 36.603 and 54.801(a).
\29\ Local switching support for incumbent LECs ranged between $360
million and $384 million annually from 2003 through 2006. Interstate
common line support (including its predecessor long-term support) for
incumbent LECs, which ranged between $871 million and $953 million
annually from 2003 through 2006, has remained stable at approximately
$950 million annually for the last 2 years. See Universal Service
Monitoring Report, Table 3.2.
\30\ In the Universal Service First Report and Order, the
Commission adopted this principle as part of its effort to support more
than one competitor in rural areas. Federal-State Joint Board on
Universal Service, CC Docket No. 96-45, Report and Order, 12 FCC Rcd
8776 8944-45 paras. 311-13 (1997) (Universal Service First Report and
Order) (subsequent history omitted).
\31\ See infra para. 12.
\32\ Letter from John T. Nakahata, Counsel to General Communication
Inc., to Deborah Taylor Tate, Federal Chair, Federal-State Joint Board
on Universal Service, and Ray Baum, State Chair, Federal-State Joint
Board on Universal Service (dated Apr. 13, 2007).
\33\ See 47 U.S.C. 254(a)(2).
\34\ In addition to capping competitive ETC support by state, we
considered, but declined to recommend, capping competitive ETC support
nationwide or by study area. A nationwide cap amount would maintain
incentives for states to designate additional competitive ETCs to
increase their share of competitive ETC capped support and would result
in competitive ETC support shifting to those states that aggressively
designate competitive ETCs during the period of the interim cap. A cap
by study area would foreclose the possibility of support for the
duration of the cap for those study areas that currently have no
competitive ETCs and would be administratively burdensome. We note that
establishing the cap by any particular geographic area would not change
the total amount of competitive ETC support available for all
competitive ETCs in the nation, but the scope of the geographic
territory for the cap affects the distribution of capped support and
the administrative complexity of computing capped support.
\35\ 47 C.F.R. 54.307.
\36\ See infra para. 14.
\37\ See supra para. 4.
\38\ For example, the annual true-up of interstate common line
support (ICLS) occurs in the third and fourth quarters, but not in the
first and second quarters.
\39\ May 2007 Public Notice.
\40\ Id.
\41\ See id. at para. 1.
Senator Stevens. Thank you very much.
Senator McCaskill, did you have an opening statement?
Senator McCaskill. No.
Senator Stevens. Senator Klobuchar?
Senator McCaskill. No, Mr. Chairman, thank you, though.
Senator Stevens. Senator?
Senator Klobuchar. Yes, I do.
Senator Stevens. Thank you.
STATEMENT OF HON. AMY KLOBUCHAR,
U.S. SENATOR FROM MINNESOTA
Senator Klobuchar. Thank you, Mr. Chairman.
I'm pleased to be here today to address the Joint Board's
recommendation regarding high-cost universal support and to
consider, more generally, ways to reform Universal Service.
I don't think that anyone questions the important policy
goals inherent in the Universal Service system. And nobody in
1934, or even 1996, could have predicted the importance of
wireless service in modern life.
I've talked, in previous hearings, about the importance of
high-speed Internet connections in rural America, the
importance of having telephone service and cell phone service
all over our state. I can tell you having just recently driven
in the far corners of our state, that it's still a major issue.
And, in light of this, I'm concerned that any cap on high-
cost Universal Service support for competitive eligible
telecommunications carriers, even the temporary cap proposed by
the Joint Board, may at first delay and then hamper current
efforts to build-out wireless service in rural America. At the
same time, I'll say that I recognize that the Universal Service
system screams out for reform. As Commissioner Copps wrote in
his dissent to the May 1 Joint Board recommendation, we should
be bringing everyone to the table to develop as much consensus
as we can.
I look forward to the testimony today, and questioning you,
Commissioner Tate, and to learning about the ways we can
achieve fundamental comprehensive reform.
Thank you.
Senator Stevens. Thank you, Senator.
Ms. Tate, these first questions are the Chairman's
questions.
The Joint Board's recommendation for a cap is designed to
be a short-term fix for the growth in Universal Service demand.
In order to ensure the long-term stability of Universal
Service, what specific further reforms would you favor?
Ms. Tate. I'm glad the Chairman noted that this was
definitely an interim decision, and a consensus decision, on
what action to take.
My vision, obviously, in terms of being a Commissioner, I
have an open mind on many of the proposals that have been
submitted to the record. We have numerous comments, and reply
comments, and I'm looking forward to the close of that comment
period, to review all of those.
My vision, as I said in my statement, was for us to move to
a technologically and competitively neutral plan that would be
based on the provider's cost, and hopefully that would also
have mechanisms that would control this continued growth over
time so that, indeed, we can sustain the Fund to be used
precisely as you all have recognized, for what it should be.
There are a number of proposals, obviously, that you all
have discussed. Chairman Martin and many others in the record
have suggested reverse auctions that, indeed, would be
technologically and competitively neutral. The Joint Board
suggested in our Recommended Decision, that the FCC review the
primary line restriction, which Congress has disallowed in the
past; and the possibility of revisiting the portability rule.
There are also some proposals about trying to utilize more
granular data for the purpose of also better targeting the
funds to the need.
Senator Stevens. The Chairman would have asked, ``In the
long term, do you believe that Universal Service funding should
be available to more than one carrier in a geographic area?''
Ms. Tate. We did not reach a decision about that. And I
think that is one of those decisions that, as a Commissioner, I
will be faced with in trying to determine what fundamental
reform will look like. Certainly, that's going to be an
important part of this, and that is whether we fund multiple
carriers in areas that are determined to be high-cost areas.
Senator Stevens. Well, the Joint Board recommends Universal
Service funds for competitive carriers be capped on a state-by-
state basis. The recommendation omits any mention of tribal
lands. In the light of the special jurisdictional concerns
involving Indian country, how should the FCC apply that cap to
tribal lands? That's still a question of the Chairman's.
Ms. Tate. Yes, sir, I understand. I think that, as I said
in my statement, certainly the FCC and the Joint Board realizes
there are many unique circumstances for tribal lands, and we
would need to take those unique circumstances into account as
we move forward with the implementation of a cap.
Senator Stevens. In order to preserve sovereignty of these
tribes, would it be best to address support for competitive
carriers serving tribal lands on a case-by-case basis?
Ms. Tate. Senator, I haven't had an opportunity to think
about looking at that. I assume that as we look at tribal lands
through the lens of the unique circumstances that they pose, I
assume that's what that does mean.
Senator Stevens. All right. Senator Sununu preceded me, and
I would call on him first.
Senator Sununu. No, that's all right. Please continue.
Senator Stevens. All right. I just have one question. Did
the Joint Board consider the problem of paying the second
carrier, the competitive carrier, on the basis of the primary
carrier's costs? As I understand it, if carrier A has been
serving, and carrier B comes in to compete and seeks Universal
Service, the reimbursement to carrier B is based upon the cost
to carrier A, not carrier B. And, by definition, in almost
every circumstance, carrier B has a substantially lower cost.
Why the windfall?
Ms. Tate. Yes, sir. Well, I think that that goes back to
fundamental reform of the entire program.
Senator Stevens. It's not in the law. The Commission did
that.
Ms. Tate. Once again, I think that that is precisely the
reason that we need to move forward absolutely as quickly as
possible toward fundamental reform.
Senator Stevens. Well, I agree. I just cannot believe that
we would have the situation continue, when the Commission has
the authority to change this without the Joint Board. We do
have the bill Senators Dorgan and Smith have introduced, and I
have a bill on Universal Service reforms, and Senator Inouye's
staff and mine are working on a way to put them all together.
But it's going to take time to do that. The Commission
could solve this now. That chart you showed us of the increased
cost is based upon a cost basis that is based primarily upon
fixed cost. The new carriers are involved in wireless and other
basic costs that are substantially lower. I just don't
understand why the Commission persists in allowing that to
continue. Have you reviewed it at all?
Ms. Tate. That was not what the Joint Board particularly
focused on. The Joint Board came to a consensus that we should
cap the CETC side on the Fund only as an interim basis so we
could move forward as quickly as possible toward fundamental
reform. I agree with you, Senator, that the present system is
fraught with many inequities.
Senator Stevens. This will be my last question. It is my
understanding, what is happening now, under the Joint Board's
recommendation, is you cap the newcomers, you cap the
competitors that are coming in, and keep that cap on for at
least 18 months, when the problem is recognizing those
newcomers come in at a lower cost. I'm frustrated dealing with
this issue, because we're getting a bill passed when FCC has
the power to deal with it. You're relying on this Joint Board
as though it's something we mandated you to follow. We have not
mandated that you follow them. Do you agree?
Ms. Tate. I can understand your frustration, Senator. And I
think we're all frustrated. I think that's why the Joint Board
came to a consensus decision that we needed to do something to
curb the Fund.
I do want to speak for a moment, though, about the new
carriers that could be designated. The cap is at the State
level, so new carriers may be designated, and they would share
in--underneath whatever that State cap is.
Senator Stevens. Yes, I'm afraid of that. With a state one-
fifth the size of the United States, we have the new carriers
come in with new technology, and you're going to put a cap on
what's happened in the past, when we still have areas that
don't have any service at all. So, I don't understand what's
going on. It's just like someone's putting their head in the
ground. This is an ostrich approach, as far as I'm concerned.
Senator Sununu?
Senator Sununu. Thank you, Mr. Chairman.
Commissioner Tate, you indicated that the Commission--or
the Board wasn't able to reach consensus on more comprehensive
measures. And that's frustrating to hear, especially in an
environment, and on a Committee, where everyone says they're
for reform, and they're for change, and they're for the future,
and they're for the children. Can you be specific as to what
the obstacles are, and what the reasons are, that have
prevented consensus from being developed at the Joint Board?
Ms. Tate. Well, let me start out with saying that there was
consensus. Seven of eight of us determined that we needed to
take this first step. So, in----
Senator Sununu. No, no, but consensus on----
Ms. Tate. I understand.
Senator Sununu.--broader reform. No, but you wouldn't be
here--you wouldn't have made the recommendation on the CETCs if
there weren't consensus, I understand that. But----
Ms. Tate. And----
Senator Sununu. But you were talking about more competitive
reform----
Ms. Tate. Absolutely.
Senator Sununu.--and an----
Ms. Tate. And----
Senator Sununu.--obstacle there.
Ms. Tate. And I can assure you, I wish that I could have
moved us, faster, forward to more comprehensive reform. We
discussed many of the recommendations that are already in the
record. I think the good news is, I've never seen this much
attention focused on these issues. People are frustrated. The
Fund is growing at an unsustainable rate. So, I do think we are
beginning to get good, cost-effective, cost-based--as Senator
Stevens said--proposals on the table, and we will move forward.
We are meeting in July. We continue to meet extremely often to
try to move forward on this. The reply comment period, I think,
closed today or tomorrow. We will immediately get all of those
comments summarized and begin to work through each one of those
concepts.
Senator Sununu. But, in the absence of any description of
what the specific obstacles to consensus for broader reform,
it's hard to believe, then, that you'll be able to meet the
goal of putting forward a more comprehensive plan in 6 months.
And, in your statement, you talk about being able to advance
some more comprehensive proposals in the near future. One, why
should we feel good about that commitment--or why should we
feel comfortable that that goal will be met? And, two, what
deadline should Congress set to help ensure that that action is
forthcoming?
Ms. Tate. Well, thank you for recognizing it's a really
tough job trying to get people to come to consensus, especially
on these issues. So, I thank you for recognizing that. It would
be wonderful if you all asked the next panel some of these
questions.
Senator Stevens. We will.
[Laughter.]
Ms. Tate. Ask them to come together so that we can get to
fundamental reform.
Senator Sununu. But why are you confident it will happen in
6 months? And should Congress set a deadline for action?
Ms. Tate. The Joint Board, in a consensus decision, chose 6
months. We wanted to keep ourselves on a very tight timeframe.
If you all would like to choose a timeframe, I'm sure that we
will try to accommodate that.
Senator Sununu. In the meantime, we have an interim cap on
CETCs. Some of them have requests pending, or decisions
pending, at the FCC. What happens to them? And I'm sure there
are some in many states; I'm quite sure there are some in New
Hampshire--and they've had requests and decisions pending in
front of the FCC, not for a couple of months, but, in some
cases, for a few years. What happens to those pending requests?
And are they going to be just shut off from the access that
would have been available if this decision either hadn't been
made so soon or if their petitions had been acted on in a more
timely way?
Ms. Tate. The state cap would provide that the amount of
funding is capped at the 2006 level, which is a real amount,
that we knew would be a firm amount. If new ETC designations
are made--and, as you know, most of those are through Section
214 at the State level--they will take a pro rata share of the
state-capped amount.
Senator Sununu. So, they're out of luck. You know, if they
made a request 2 years ago, or 3 years ago, the FCC hasn't
acted, you impose this cap, so it's too late, because their
petition wasn't acted on in a timely way.
Ms. Tate. No----
Senator Sununu. They can take from some other CETC, because
they're taking out of a capped pool at the State level. I
understand the point you made with regard to the pro rata
share. But, you know----
Ms. Tate. That's----
Senator Sununu.--there's obviously a very different
economic picture and a very different economic value in that.
So, they're out of luck.
Ms. Tate. They will receive funding. It will just be capped
at the State level of 2006.
Senator Sununu. But the incumbents won't be capped.
Ms. Tate. Yes.
Senator Sununu. But there's no cap on any other part of the
program.
Ms. Tate. Oh, the incumbent providers. Actually--well,
Senator Sununu, you know, there are caps over on the wireline
side, on the high-loop cost and on the interstate access rate.
And then you know that we also have a cap on both the E-Rate
fund and the rural healthcare fund. So, I mean, there are some
caps in place.
Senator Sununu. Right, but there's no overall cap in the
high-cost support, which is what benefits most of the----
Ms. Tate. There isn't a cap----
Senator Sununu.--most of the ILECs.
Ms. Tate.--that--there is not a cap now on the overall
fund.
Senator Sununu. Understood. Thank you.
Senator Stevens. Senator Snowe, did you have an opening
statement?
Senator Snowe. I did, Mr. Chairman, but I could do it
later.
Senator Stevens. You may do it later, yes.
Senator Snowe. Thank you.
Senator Stevens. Senator Pryor?
STATEMENT OF HON. MARK PRYOR,
U.S. SENATOR FROM ARKANSAS
Senator Pryor. Thank you, Mr. Chairman.
I would like to ask about the Joint Board's recommendation
being interim in nature. Do you think ``interim'' means
interim? I mean, is that a short-term, long-term--how----
[Laughter.]
Senator Pryor. What does that mean, in your world?
Ms. Tate. Obviously, I haven't been in D.C. as long as all
the people behind me, but----
[Laughter.]
Ms. Tate. You know, we chose--again, as a consensus
decision--to make this an interim cap. We set very strict
guidelines to act in the most timely way that we, as the Joint
Board, felt would be possible. In the decision, we even used
the word ``emergency.'' So, I am hoping--I pledge to you all
that I will work as hard as I can to facilitate the continued
discussions between the Joint Board members so it is, indeed,
an interim cap.
Senator Pryor. The concern I have about the use of the term
``interim'' is that the Commission adopted an interim freeze on
separations factors in 1982, and an interim cap on high-cost
loop support in 1993, and, basically, those are still in effect
today. So, I think there have been very slight modifications to
both of those, and there are probably other examples, too, that
people in the audience are aware of. When you talk about
``interim,'' and you talk about ``consensus''--now, I wasn't
part of any of those discussions, but I would like to know your
impressions on the consensus. It sounds to me like it was very,
very difficult to reach a consensus, and, basically, you just
did the best you could under the circumstances. But maybe a
true consensus still needs to be reached. Is that fair to say?
Ms. Tate. Absolutely, Senator. We must move toward
fundamental reform.
Senator Pryor. Well, what----
Ms. Tate. And----
Senator Pryor.--what is it that will get you to consensus,
where we can move to fundamental reform? What are the major
sticking points?
Ms. Tate. Someone has already quoted my colleague
Commissioner Copps, and he said, ``Well, everyone may have to
sacrifice a little.'' And, again, not to be trite, but you are
going to have a panel in front of you that represents all the
major industries that are going to be affected by whatever--
whether it's a cap or another recommendation--that the FCC may
accept. So, I would ask you all, as we are doing, to encourage
the industry to come together around some consensus proposal.
Senator Pryor. OK. There's a lot of investment right now in
rural broadband by the wireless industry. Do you think that
this recommendation of the Joint Board will help or hurt
deployment of rural broadband?
Ms. Tate. You know, obviously, like you, I live right next
door, and I am constantly amazed and thrilled by all the
services that the wireless industry is providing. We want to do
all we can to encourage that. I believe that rural Americans
should have an evolving level of services. So, I hope the
interim nature of this will be seen as that, and that companies
will continue to invest. And, as you know, there are many
companies that don't seek ETC status----
Senator Pryor. Right.
Ms. Tate.--wireless companies, that do provide services.
Senator Pryor. Right. There again, the ``interim'' issue
there, to me, would make it difficult for a company to know
what to do, in terms of how much to invest, based on what the
future might look like. They would like some certainty.
Ms. Tate. Senator, what do you think--I mean, I'm--I'm very
interested in moving toward a more competitively neutral cost-
based system, so that's one of the concepts, for instance, when
you say, ``What's standing in your way?''--you know, perhaps
that's something that the wireless industry would want to come
forward with----
Senator Pryor. Uh-huh.
Ms. Tate.--some kind of cost-based analysis, their own
cost, cost to serve a very specific area. Alltel has a really
creative suggestion in the record right now about providing
broadband to underserved areas. So, you know, maybe those are
some suggestions that you could encourage.
Senator Pryor. OK. Well, thank you, and I'll try to do
that.
One last question, on the Fifth Circuit Court of Appeals.
They stated that the Commission, ``Must see to it that both
Universal Service and local competition are realized,'' and
that you, ``cannot flatly ignore or contravene a goal set forth
in the Act.'' Do you feel like this recommendation of the Joint
Board--are you accomplishing what the Fifth Circuit has laid
out, or do you think there's still work to be done?
Ms. Tate. Well, once again, yes, there is much work to be
done. We have got to move toward fundamental reform. And I
think that this cap was just in order to move us forward one
step to stem what we see as just unsustainable growth on that
side.
Senator Pryor. Thank you, Mr. Chairman.
Senator Stevens. Thank you.
Senator McCaskill?
STATEMENT OF HON. CLAIRE McCASKILL,
U.S. SENATOR FROM MISSOURI
Senator McCaskill. Thank you, Mr. Chairman.
I got to tell you that I know broad-based reform is hard,
but if there was ever an area that needs broad-based reform,
obviously it's this. And I'm a little depressed, because you
keep asking us to ask the next panel. And that's kind of a
public acknowledgment that, you know, the cart is driving the
horse here.
The next panel is full of people who have financial
interests. This is about money, and they have financial
interests. And what you're basically saying to us is, ``The FCC
is incapable of moving forward on reform unless all the people
who are making money say it's OK.'' And that's hard for me to
get my arms around.
It seems to me that the FCC is supposed to be the body that
is given the statutory authority, and it's given the ability to
look at this broad program and see whether or not it's
accomplishing its purpose, and see whether people are being
enriched, and act, not waiting for the people who are making
money to all join hands and sing ``Kumbaya.''
And so, I'm interested in why we have gotten to the point
that, before the FCC can do its job, you've got to get all the
people making money to agree with you.
Ms. Tate. I certainly understand your frustration, and we
are acting. I'm here today because we took a step, and there
are a lot of people who obviously are not pleased with the
consensus recommendation that the Joint Board came forward
with. But we are moving ahead. We've set a tight timetable, the
Joint Board has asked the FCC to work on a very tight
timetable. I think the Chairman will be placing something
before the full Commission in very short order for us to look
at. So, we are moving forward.
Senator McCaskill. It's my understanding that the cap will
not cap the amount of money that taxpayers are paying into this
Fund. Correct? In other words, the amount that consumers
continue to pay is going to remain.
Ms. Tate. Well, consumers will continue to pay in, but the
rate will be capped at what the 2006 rate was.
Senator McCaskill. Well, my question is simple. Will the
Fund continue to grow, overall?
Ms. Tate. Well, we have only capped the CETC portion, so I
can't answer, right now, whether the Fund--the entire Fund will
continue to grow or not. If we did not cap this side of the
Fund, then this side of the Fund would continue to have grown
at a rate that's unsustainable.
Senator McCaskill. But there's nothing in this
recommendation that will make sure that consumers are not
continuing to pay for this in the future.
Ms. Tate. Consumers are continuing to pay, today, Senator.
Senator McCaskill. It's my understanding that this Fund
cannot be used for broadband, but it can, kind of--wink, wink,
nod, nod--be used for everything but DSLAM. And so, is it the
knowledge of the FCC that a lot of these monies are being used
for what you would call ancillary or connected costs of
deploying broadband without actually spending it on the DSLAM?
Ms. Tate. Well, I think that investment in infrastructure
that supports broadband--certainly, some of this money is being
used to encourage more investment in infrastructure, especially
in rural areas. There----
Senator McCaskill. All right.
Ms. Tate.--are also--as you know, we also are encouraging
broadband through E-Rate, through our rural telemedicine, so we
are encouraging broadband at the FCC.
Senator McCaskill. I want to ask you, is the FCC familiar
with what is and isn't happening with the Rural Utilities
Service Broadband Grants at USDA? Do you all look at that, that
program, and what is and isn't happening with that program, as
you all consider the Universal Service Fund and the impact that
it is or isn't having in rural America?
Ms. Tate. I don't have any personal knowledge about having
met with them. I'm sure that, at some level, our bureaus
probably do work together. I remember that when I was a
Commissioner in the State of Tennessee, actually there was a
joint RUS, ARC, and FCC pilot project up in Appalachia. So, I
know that, at least in the past, our staffs have worked
together.
Senator McCaskill. Well, you know, it's another example of
where, there's money being spent on the same thing from two
different pots of money, and the person who knows how to access
the pots of money, and who's got the inside track, they're all
anxious for everything that is currently the way it is to not
change. And, as has kind of been referenced in previous
questions, the goal needs to be that we continue to keep the
field open for future competitors, and I'm frustrated that the
Rural Utilities Service Broadband Grants, even though we'd
authorized with leverage, you know, billions of dollars, and
appropriated billions of dollars, it is not being deployed in a
way that is making the kind of progress, I think, that was
anticipated by the legislation, to impact rural broadband.
Let me ask you this question. Do you all feel that the
initial reason this Fund was put in place, in terms of making
sure that there were landlines available in rural America--do
you feel that the need is the same now, for maintenance as it
was for establishment?
Ms. Tate. Well, certainly I believe that all Americans
should have the opportunity to have an evolving level of
services. And, in order to have those new technologies, there
has to be a new investment in infrastructure for companies to
keep up with the new technologies and to provide those to all
Americans.
Senator McCaskill. Should we open up this fund for
broadband, then, for Internet phone?
Ms. Tate. Well, that is certainly one of the
recommendations that we have been asked, on numerous times.
And, in fact, I believe some people on this Committee probably
would like for us to do that. The Joint Board did include that
question in our Public Notice that accompanied the Recommended
Decision. So, we will be taking that into account as we move
forward.
Senator McCaskill. And is there any fear--if we're frozen,
without consensus, by the people who are stakeholders, from a
profit perspective in this system, is there any fear that if we
lock in a cap, that what we're doing is locking in the status
quo?
Ms. Tate. I hope not. This is, indeed, a change. And what
we hope is that--once again, this is the first step--we're in a
process, this is not a solution--that this is the first step,
so we can get, and move toward, fundamental reform.
Senator McCaskill. Well, Mr. Chairman, I know that you're
working on broadbased reform in this area, and I hope that we
can all come together and try to, as quickly as possible,
within the way the U.S. Senate works, get the comprehensive
reform. And I hope we include the Rural Utilities Service
Broadband Grants. With the farm bill coming up, I think that
has to be contemplated, too.
It seems to me that we've got a bunch of silos here, and
that the people that have the mechanism to move around those
silos and figure out how to access the money are ones that are,
kind of, driving this train, as opposed to the sound public
policy that ought to be ruling the roost at this juncture.
But, I thank you, Commissioner Tate, for being here today,
and I will try to, along with my colleagues, ask some of the
questions you want asked. But I want to encourage you, that it
doesn't matter what the next panel says, if the FCC is willing
to act.
Thank you, Mr. Chairman.
Senator Stevens. Well, thank you, Senator.
The Senator--you're right, because that is a pot of
taxpayers' money. Our normal Universal Service is dealing with
ratepayers' money. And we've had little access, through this
Committee, to that other pot of money. And the reform bill, we
ought to find ways to mandate that cooperation so that the
subsidy fund is used, and used appropriately, to advance rural
communications. And I thank you for the comments.
Senator McCaskill. Thank you, Mr. Chairman.
Senator Stevens. Senator Klobuchar?
Senator Klobuchar. Thank you, Mr. Chairman.
To follow up on some of the focus of Senator McCaskill's
comments, Commissioner Tate, I mentioned that when I traveled
through my State, I see, repeatedly, the need for more access
to cell phones, broadband. And, in light of the proposed cap--I
know, again, you've talked about listening to these other
panelists, but I'd like to know what you propose, to reform
Universal Service.
Ms. Tate. Well, I think that my overall vision is trying to
move forward to technologically and competitively neutral
mechanisms that are based on providers' cost, not an embedded
cost of someone else, and that we will try to incent efficient
technologies, and that we will try to incorporate some type of
mechanism that will control the Fund growth over time so that,
once again, the Fund can do what it was intended to do.
I'm in a little bit of an odd position, because not only am
I the head of the Joint Board, I'll be voting on many of these
recommendations and issues. And so, I have an open mind. I'm
looking forward to even more concepts that may come forward on
both the distribution side--like reverse auctions, for
instance, which would be competitively neutral--as well as over
on the contribution side--for instance, the numbers-based
approach that the Chairman and others have suggested.
So, I think that we can do a better job using more granular
data. I think, now there's incredible technology, this GPS
technology that we haven't had in the past, so that we can
target it to places that you're describing and that are in my
State, as well.
Senator Klobuchar. You know, there are many places where
multiple carriers receive the Universal Service Fund support
for the same geographic area, and that's especially in town
centers. And, at the same time, as you mentioned, there's rural
areas where there's no support at all. And how can we ensure--
and, again, I want to follow up on this, the end of your
comments there--that the USF targets these underserved areas.
Ms. Tate. Absolutely. Well, I mean, it is the very purpose
and essence of what Universal Service is, to target those
areas. And so, that's precisely what we are trying to do by
getting to fundamental reform, so that, indeed, we can ensure--
--
Senator Klobuchar. I'm just looking for your ideas on how
we do it, because I just haven't seen it happening in the way
that we want to see it happening. So----
Ms. Tate. Well, you know, I think that, once again, if we
moved toward something, such as reverse auctions, then we are
ensuring that there is a carrier serving an area that is based
on cost.
Senator Klobuchar. You know, we talked, before, about
getting things under control. And, I know, in the past few
years, both the Commission and the Joint Board have sought to
limit the number of competitive eligible carriers that were
eligible for the USF funds. And why didn't this reduce the
dollar amount of the competitive carrier support? I think it
grew from--correct me if I'm wrong--something like $15 million
in 2001 to almost 1 billion in 2006.
Ms. Tate. Yes, those numbers are right, unfortunately.
And----
Senator Klobuchar. And so----
Ms. Tate.--you know, this----
Senator Klobuchar.--what went wrong?
Ms. Tate. Well, Section 214 of the Act provides that the
states shall designate ETCs. And so, while the Commission has
tried to encourage more stringent--for instance, criteria,
eligibility criteria--that was merely voluntary--it could be
voluntarily accepted by the States. Some States, I think, have
slowed down on their ETC designations. Some states have, now,
more stringent requirements. But there are also others that
have not chosen that path.
Senator Klobuchar. Did the Joint Board consider other
interim measures besides a temporary cap on the amount of high-
cost support that the competitive eligible carriers could
receive?
Ms. Tate. Well, of course we held an en banc. We had
numerous comments already in the record. We reviewed all of
those. But, as I said, I wasn't able to pull the Joint Board
together to move any farther toward consensus at this
particular time. We all recognized we had to do something to
stem the growth.
Senator Klobuchar. And what do you think's going to change
in the next few months that will get you to get the kind of
consensus you think you need to move?
Ms. Tate. For one thing, because there are even more
comments and ideas and innovative projects, such as the one
that I mentioned that Alltel had suggested. I think that there
continue to be people coming forward, saying, ``What about
this? What if we did this?'' And that's precisely what we hoped
would happen. So, we are continuing to, as I said, review all
that's in the record now. I think the record--the reply
comments may close tomorrow. And, of course, we'll share all of
that with you all, as well, and, you know, welcome your input.
Senator Klobuchar. I'd just like to reiterate what you're
hearing from the other Senators, just our frustration that we
haven't been able to hear more from the FCC, in terms of
reform, and get those ideas moving and going. We hear more and
more from people throughout our states that we're in this
amazing technological age, but some of them are still left
standing with just plain old telephones, and they're not able
to access this technology that other people in this country are
sharing in.
Ms. Tate. I understand.
Senator Klobuchar. Thank you.
Senator Stevens. Thank you very much.
Maybe, Senator, we'll--the Joint Board will have given
Congress itself an incentive to act.
Senator Klobuchar. Very good idea, Mr. Chairman.
Senator Stevens. Senator Snowe?
STATEMENT OF HON. OLYMPIA J. SNOWE,
U.S. SENATOR FROM MAINE
Senator Snowe. Yes, thank you, Mr. Chairman. And I thank
you and Chairman Inouye for your efforts in this regard. And I
know your efforts, consistently, as previous Chair of this
Committee, in reform legislation, with which I've joined on the
Universal Service Fund, which is instrumental, undeniably. But,
regrettably, we're at a point today where I think that it
handicaps rural America with the proposal that is being put
forward by both the Joint State Board, Commissioner Tate, as
well the FCC. I think it has ominous implications.
And you'll, in the second panel, hear from one of my
constituents, who is a Chief Deputy of the Kennebec Sheriff's
Office in Maine, and is lead spokesman for the Maine Sheriffs'
Association. And he'll be very vocal, as he has in raising, I
think, awareness of this issue throughout our state, about the
implications and the consequences of the inability of rural
America to have access to wireless service. And that's
essentially what it's all about here today.
There's no denying we need reform. And, we should certainly
do our part here in Congress. But it doesn't mean that we have
to accept a recommendation that disadvantages rural America.
And that's certainly true in Maine. And I think of the numbers,
it's staggering, from where we are today, in terms of wireless.
People having, more than 600,000--my 1.3 million population of
the State of Maine, from less than 300,000--had wireless, back
in 2000-2001. But, as a result of this cap on the high-cost
fund, what is going to happen is that they're going to be fewer
towers built. In fact, we'll lose five towers from one carrier.
Another carrier is planning to build 32 towers over the next
few years, and six of which, last year that were built, were
based on using funds from the high-cost fund. So, what that
means is, the rural parts of my State, as across America, as
indicated by the comments here today of--with my colleagues,
are going to be denied the very technology that can make the
difference between life and death. And that's what Sheriff
Flannery will be talking about. And that's true. It's one thing
to say, ``Well, I'm sorry, we can't afford this service,'' but,
at the end of the day, the consequences are that people in
rural America aren't going to get the benefits, of this
service, when over half the calls to 9-1-1 come from wireless
service. So, that's what we're talking about. These are life-
threatening situations; in addition, obviously the economic
implications when rural areas are denied the state-of-the-art
technology.
And so, I think the inherent unfairness, the
disproportionate burden that it places, on my rural State of
Maine and rural regions around the country, I think should lead
the FCC to think about putting this on hold. I just think that,
frankly, just because we haven't been able to reach a
comprehensive solution, whether it's in Congress, or whether
it's within the FCC, that we shouldn't place that burden on
rural America at this point in time. The world's revolving
around wireless. And if--that being the case, we can no longer
say, ``Well, we're just going to continue to have them exist on
1920s technology, with wirelines,'' because we're in a
different world today, and I don't think that rural areas
should face that disproportionally.
Finally, the point I want to make is, is that wireless
carriers--and I'd like to have you speak to this question--pay
more than a third of the contributions to the high-cost fund,
so, therefore, they should reap the benefits, of being able to
build-out this infrastructure in rural regions of our country,
as in two of our major carriers in the State plan to do, but
will have to postpone those plans--building, for example, five
towers next year--because they depend on support from the high-
cost fund.
So, let's start with that. We have a third of wireless
carriers--the wireless carriers are paying a third into the
high-cost funds. Why shouldn't they be able to continue to get
the additional funds that they deserve, and that they have
contributed to?
Ms. Tate. Senator, I just have to say, the safety and
welfare of citizens everywhere has been one of my highest
priorities. I was a State official, and now I'm a Federal
official. And I want you to know that. I am concerned.
At the same time, I think that the premise of your question
is based on the system being fair right now. There are so many
inequities in the present system. Some of them we've already
talked about, and that is the fact that the wireless carriers
receive funding, not based on their own costs, which, in most
cases, are much, much less than the ILEC cost, but they
actually receive cost based on the embedded cost.
The other thing is that, when we look at that cap--when we
looked at the cap in the CETC side, that's where the growth
was. So, we looked for, where is the problem, and how do we try
and provide a solution to that particular problem?
And I guess the other thing is that, on the ILEC side,
there are caps. There's the cap on the high-cost fund, there's
a cap on interstate access. And we have other caps throughout
the system, whether it's E-Rate, that you know about, or the
rural healthcare fund. So, this provided, actually, some parity
as we made these decisions.
They are difficult decisions, I agree with you. I'm from a
very, very rural State. I'm concerned about these decisions, as
well.
Senator Snowe. But this is a very piecemeal approach. And
so, you're asking one sector, and certain parts of America to
bear the disproportionate burden of this decision because of
the inability of the FCC to reach a consensus, or this Joint
State Board, and even the U.S. Congress. But rural America
should not be put at risk because within the FCC or the Joint
State Board you have not been able to reach a consensus. An
interim measure, at the minimum, is going to be 18 months.
That's not interim, in my view, number one. Second, by imposing
a cap, I think, frankly, it's going to be a disincentive to
reaching a consensus within the FCC, because you've made your
decision to control the costs until you have the ability to
make that decision, but it's within the FCC. The Joint State
Board, you don't have to accept their recommendations, frankly.
The FCC has a responsibility, as well. It's not because they're
saying, ``Well, we'll wait for the industry to reach a
consensus.'' It's all well and good, they should try to reach a
consensus on the question you raised about, ``What are the true
costs?'' and so on, and we all agree with that. But that
doesn't mean to say that you have to accept a piecemeal
approach that unfairly affects, one sector or one part of
America. And that's what's happening now. And I think you have
to look at the implications of this decision, which I think are
enormous and is going to place rural America at a tremendous
disadvantage. So, do you agree?
Ms. Tate. Obviously. As I've said, I'm from a very rural
State, too. I want----
Senator Snowe. Well----
Ms. Tate.--rural areas to have evolving levels of services.
The Joint Board----
Senator Snowe. So----
Ms. Tate. Once again, Senator, you know, the Joint Board
has representatives on it from very rural areas, from Oregon to
Vermont, to very rural areas. And this was, once again, seven
reasonable people who came to the decision that the problem was
on the CETC side, and that's the step that we decided to make
in order to sustain the Fund at this time.
Senator Snowe. Well, I think it's ignoring and overlooking
the magnitude of the impact of that decision, frankly. I mean,
just in my State, when you're talking about postponing five
towers, this year, as a result of that cap, I mean, that's just
the beginning of this process. And so, I think that, obviously,
it's going to have enormous implications. And I don't think
that the FCC is being responsible by accepting that decision,
based on what the implications are, frankly. And it may well be
that you're all sensitive to rural America, but you're not
looking at the ultimate consequences. That's why I submitted a
letter to the Commission. The Maine State Legislature has
passed a resolution, you know, unanimously opposing, this
recommendation, because it's going to have enormous
implications, and it's going to set back rural America by years
by the time you get around to making that decision. So, I don't
think it's fair to put them in that position, because a
comprehensive solution cannot be agreed to.
And, finally, when you're talking about the charges, I am
curious about the nature of the charges. From the second
quarter of 2005 to the third quarter of 2006, the USF surcharge
hovered between 10.2 percent and 10.5 percent; fourth quarter
2006, the FCC dropped it to 9.1 percent, and then, in the
second quarter of 2007, increased it to 11.7 percent. It hasn't
been that high since early 2005. I mean, so what contributes to
the erratic nature, of these increases?
Ms. Tate. I believe the----
Senator Snowe. And----
Ms. Tate.--particular instance that you're noting was from
one-time payments that were underpayments that came in from the
interexchange carriers, possibly in the range of $500,000. I
mean, I can find that and provide you the specific information.
Once again, that was one of the reasons that the Joint
Board came up with a recommendation regarding a State cap
rather than caps that might be based on quarterly fluctuations
because of some payment into the Fund.
Senator Snowe. Well, obviously we're not going to reach an
agreement here today, regrettably, but I just want to reiterate
my opposition, my deepest opposition to this proposal, because
I don't think it's fair to rural parts of America. And, as
Sheriff Flannery will tell this Committee, what, he and others
in the law enforcement community today go through to get a
signal--and remember, half of the 9-1-1 calls come from
wireless service. So people depend on it, they expect it. And
so, the fact that we're going to be denying them these
additional towers over the next few years, because that's what
it means, because companies have to make their long-term
decisions and investments, and if they don't have the
predictability and the certainty of the support from the high-
cost fund, they're going to postpone and defer those decisions,
at obviously, the expense of the rural parts of my State and
across this country. I would hope that the FCC would reconsider
this decision because of the enormity of the impact it's going
to have.
Thank you, Mr. Chairman.
Senator Stevens. Thank you. No Senator has any further
questions of Ms. Tate, I hope.
Thank you very much. You've been----
Ms. Tate. Thank you.
Senator Stevens.--very patient. And I think you've
represented the FCC very well. I'm not saying I agree with the
FCC, but thank you for your participation.
Ms. Tate. Thank you, Mr. Chairman.
Senator Stevens. We'll now call panel 2. You want to recess
for just a couple of minutes?
Our next panel is John Rooney, President and Chief
Executive Officer of U.S. Cellular; Mr. Roger Nishi, Chairman
of the Organization for Promotion and Advancement of Small
Telecommunications Companies; Mr. Jonathan Foxman, President
and Chief Executive Officer of Chinook Wireless; Mr. Joel
Lubin, Vice President of Regulatory Planning and Policy for
AT&T; and Mr. Everett B. Flannery, Jr., the Chief Deputy of
Kennebec County Sheriff's Office, Augusta, Maine.
Gentlemen, the Chairman has adopted the benign policy of
urging witnesses to keep their statements short, and it seems
to be working better than my policy of limiting them precisely
to time limits. So, please proceed, with the idea that others
are following you, and we would hope we'd have a chance to ask
you questions.
Our first witness would be John Rooney.
Mr. Rooney?
STATEMENT OF JOHN E. ROONEY, PRESIDENT AND CEO, UNITED STATES
CELLULAR CORPORATION
Mr. Rooney. Good morning, Mr. Vice Chairman and members of
the Committee. My name is Jack Rooney, and I'm the President
and Chief Executive Officer of United States Cellular
Corporation. I want to thank you for the opportunity to appear
before you today.
U.S. Cellular provides wireless service in nearly 200
markets across the country, including many of the states
represented in this Committee, including California, Maine,
Minnesota, Missouri, New Hampshire, Oregon, South Carolina,
Texas, Washington, and West Virginia. The overwhelming majority
of the geography we serve is rural in character. We currently
receive Universal Service support in seven States, including
Washington, Oregon, and Maine.
I am here to advocate reform of the Universal Service
program in a comprehensive and constructive manner. U.S.
Cellular strongly opposes capping support to wireless carriers.
Today we are using that support to provide rural consumers with
access to essential services in ways that would not otherwise
be possible. For example, in Maine we are using support to
construct 21 sites in small towns, such as Grand Isle, Union,
and Peru. In Oregon, we are using funds to build 11 new sites
in places like Emigrant Lake, Wallowa, and Butte Falls. Every
cell site we build provides critical public safety benefits. At
a time when the public is increasingly concerned about having
E-911 service, it scarcely bears mention that, without a cell
site, E-911 is useless.
I believe that there are five factors to consider when
reviewing the current situation.
First, freezing support to wireless carriers harms rural
customers by denying them the improved service that we're ready
to deliver. According to the FCC's own data, between 1995 and
2005 the average cost of wireless service dropped from 43 cents
per minute to 7 cents per minute, while usage increased from
119 minutes to 740 minutes over that same period. This is great
news for people living in areas where network service quality
is high. They see tremendous savings in their phone bills,
sometimes $50 or more per month. However, these benefits are
not available to rural Americans who live in areas with poor
signal quality.
Second, since 1996, more than $22 billion of consumer
contributions to the Fund have gone to landline carriers, while
less than $2 billion have gone to wireless carriers. Consumers
have a right to know why they're being asked to continue to
provide $3 billion a year to a service that they are abandoning
in droves.
Third, U.S. Cellular's efforts to serve customers in the
States of Illinois and Missouri are examples of why the cap is
a bad idea. Under a cap, these states would not draw enough
funds collectively to put up one cell site. In Missouri, we're
poised to build 39 new sites in the next 2 years to accelerate
our network construction. In Illinois, we have committed to
building 121 new sites over the next 5 years. If a cap is
imposed, these investments will not happen anytime soon. Rural
citizens are demanding wireless service, and if the Committee
has any doubt about this, I'm told that there are over 2,700
comments on file at the FCC from consumers opposing the cap,
and that the only comments favoring a cap come from our friends
in the wireline industry who fear the emergence of high-quality
wireless services in their territories.
Fourth, wireline carriers in rural areas have lost 10
percent of their access lines over the last 3 years. However,
they continue to draw $3 billion annually. When we lose
customers, we lost support. And that's the way it ought to be.
Fifth, the idea of a wireless-only cap is wildly unfair. I
understand that all the FCC's Universal Service rules must be
competitively neutral in their effect, and there is no way that
this discriminatory proposal passes muster.
I would like to rebut a common misconception, that the
wireless industry is not accountable. In most States, we file
detailed reports demonstrating our accountability for what we
do with these funds, and I assure you that this company uses
Federal funds very responsibly.
The Joint Board's rationale for a cap is that the Fund will
become unsustainable, but they don't explain what that means.
If the Senators believe the Board's assessments, then why not
ask the wireline industry to share the burden?
Mr. Chairman and members of the Committee, I greatly
appreciate the opportunity to discuss this issue with you
today, and appreciate your interest.
[The prepared statement of Mr. Rooney follows:]
Prepared Statement of John E. Rooney, President and CEO,
United States Cellular Corporation
Good morning, Mr. Chairman, Mr. Vice Chairman, members of the
Committee, my name is Jack Rooney and I am President and Chief
Executive Officer of United States Cellular Corporation--known to our
customers as U.S. Cellular. Thank you for the opportunity to appear
before you today to share with you the many benefits our company has
been able to bring to rural America as a result of the Universal
Service Fund, and the very harmful effects that will result if the
current proposal regarding a cap on this Fund is adopted.
U.S. Cellular provides wireless service in nearly 200 markets
located in regional clusters across the country, including many of the
states represented on this Committee such as California, Maine,
Minnesota, Missouri, New Hampshire, Oregon, South Carolina, Texas,
Washington and West Virginia. The overwhelming majority of the
geography we serve is rural in character.
You should also know that our opinions and perspectives on the
Universal Service Fund are based on our experience in receiving
Universal Service support in seven states that include Washington,
Oregon, and Maine.
I am here to bring you good news about what wireless carriers like
U.S. Cellular are accomplishing in rural America with Universal Service
funding. In addition, I am here to advocate reform of the Universal
Service program in a comprehensive, constructive manner that promotes
both the Universal Service and competition mandates of the
Telecommunications Act of 1996; and, at the same time, holds the entire
industry accountable for the funds it receives. Specifically, U.S.
Cellular strongly opposes capping funding only to wireless carriers
while continuing to fund wireline carriers without reforming the rules.
Today, we at U.S. Cellular are using Universal Service support to
provide consumers and communities with access to essential services
they deserve in ways that would not otherwise be possible. For example,
in Maine, we are constructing 21 cell sites in small towns such as
Grand Isle, Union and Peru. USF funds are allowing us to provide
consumers and communities with access to essential services they
deserve and pay for--for the first time. In Oregon, we are using the
funds to build 11 new sites in places such as Emigrant Lake, Wallowa
and Butte Falls, among others. In every state where we receive
assistance, we are deploying networks in sparsely populated communities
where there is no logical business case that can justify the cost.
Let's also remember that every cell site we build provides critical
public safety benefits. In every place where we build a new cellular
site, consumers receive as much as 144 square miles of improved
coverage, including all the emergency service benefits of wireless,
such as the ability to make a 911 call, and to access the locating
features of E-911. At a time when the public is increasingly concerned
about having E-911 functionality, it scarcely bears mention that
without a cell site, E-911 is useless.
I should also highlight the outstanding performance of wireless
systems during the recent flooding in Missouri, wind storms in
Washington and Oregon, and many other natural disasters. In each
instance, our networks either continued to operate without interruption
throughout the crisis, or were restored quickly with back-up battery
power or generators so that service disruptions were confined to
minutes or hours, not days or weeks. In fact, it's worth noting that
this reliability and ubiquity makes wireless the preferred service for
displaced people and first responders. Again and again, our wireless
networks have proven to be much more robust and reliable than wireline
networks.
The key issue before us today, however, is what the Joint Board has
overlooked in its rush to throw a cap on just the wireless portion of
the fund. I would suggest we look backward, and reflect thoughtfully on
Congress' intent in enacting the Telecommunications Act of 1996 and the
successes of Universal Service funding to date, before we talk about
what should be done going forward.
Continued growth in Universal Service Fund payments has raised the
question of whether the program is sustainable given the current
methodology it uses to collect and distribute funds. What must be
remembered is that Congress, in its enactment of the 1996 Telecom Act,
intended for rural consumers to have the same access to advanced
services and competitive prices as their urban counterparts. This
access should come from providers in a competitive market, governed by
technology-neutral rules. In short, the growth of the Fund is not some
unintended aberration; it is the direct result of a conscious and
enlightened public policy.
I believe that there are five factors to consider when reviewing
the current situation:
1. The Vast Majority of Americans Prefer Wireless Service, and Rural
Consumers Want Their Cell Phones To Work Just as Much as Those
Living in Urban America
Freezing support to wireless carriers diminishes our ability to
invest in rural America and harms rural consumers by denying them the
improved service that we're ready to deliver.
Let me explain. According to the FCC's own data, between 1995 and
2005, the average cost for wireless service dropped from 43 cents per
minute to 7 cents per minute, while monthly usage has increased from
119 minutes to 740 minutes over the same period.\1\
---------------------------------------------------------------------------
\1\ See Exhibit 1.
---------------------------------------------------------------------------
This is great news for people living in areas where network service
quality is high. They see tremendous savings in their telephone bills,
sometimes $50 or more per month over wireline calling plans. However,
these benefits are not available to rural Americans who live in areas
with poor signal quality. The use of support to drive these consumer
savings is exactly what Congress intended and the proposal to cap
support only insulates wireline carriers from competition.
2. Wireline Networks That Were Built and Paid for Decades Ago Have
Received 90 Percent of Consumer USF Contributions Since 1996
Since 1996, more than $22 billion of consumer contributions to the
Fund has gone to rural landline carriers, while less than $2 billion
has gone to rural wireless carriers. Consumers have a right to know
where that $22 billion went and why they are being asked to continue to
provide $3 billion per year to a service that they are abandoning in
droves. Support should go to the service that consumers choose--not the
service that regulators force them to choose.
3. A Freeze Will Disproportionately Harm Consumers in Some States
U.S. Cellular's efforts to serve customers in the States of
Missouri and Illinois are examples of why this is a bad idea. A freeze
on funds to these states means that rural consumers have to pay in, but
get nothing--or next to nothing--in return. I understand that Illinois
citizens contribute roughly $265 million per year, while Missouri's
citizens contribute roughly $126 million.\2\ Yet, Illinois draws out
less than $2,000 per year for wireless, and Missouri draws out roughly
$125,000 per year for wireless. Collectively, these states would not
draw enough funds to put up one new cell site.
---------------------------------------------------------------------------
\2\ Source: FCC Joint Board Monitoring Report.
---------------------------------------------------------------------------
Assuming a cap is not instituted in Missouri, we are now poised to
use support to build 39 new cell sites in the next 2 years to
accelerate our network construction in underserved rural areas where
our network requires significant additional investment. In Illinois, we
have committed to building 121 new sites over 5 years if we are
designated later this year as expected. This investment will improve
service to over 2 million rural consumers. And that's just the
beginning, as we'll continue to invest all available support each
subsequent year.
For consumers, this is no small matter. There are substantial
underserved rural areas in both of these states where people are
demanding wireless service, and without support they aren't going to
see that investment. If the Committee has any doubt about this, I am
told that there are roughly 2,500 comments on file at the FCC from
consumers opposing the cap, and that the only comments favoring a cap
come from our friends in the wireline industry who fear the emergence
of high-quality wireless service in their territories.
4. Support Must Go to the Carrier That the Customer Chooses
Why should wireline carriers get subsidized even when they lose
customers? Wireline carriers in rural areas have lost 10 percent of
their access lines over the past 3 years; however, they continue to
draw $3 billion annually. When we lose customers, we lose support, and
that's the way it should be. As consumers increasingly choose wireless
for their voice needs, we should be receiving an increasing share of
the Fund so we can provide rural consumers with the high-quality
service they deserve. If any one sector deserves heightened scrutiny, I
would argue it's the landline providers that continue to benefit from
the program while being insulated from financial and market realities.
5. The Cap as Proposed by the Joint Board Is Not Competitively Neutral
Finally, the idea of a wireless-only cap is wildly unfair in that
wireless contributes the biggest share to the Universal Service Fund,
yet we draw out the smallest amount. All of the FCC's Universal Service
rules must be competitively neutral in their effect, and there is no
way that this discriminatory proposal passes muster. Nor does the
unofficial freeze by the FCC on new ETC petitions.
To be completely frank, while disappointing, the Joint Board's
decision wasn't all that surprising to us. The FCC has been treating
our petitions for ETC status as if the cap has already been in place
for some time. The FCC has not acted on any of our petitions for ETC
status, despite our obvious qualifications to be designated. Some have
been sitting there for 3 years. So we cannot deliver the benefits
described above to rural consumers in New Hampshire, North Carolina,
Virginia, Tennessee, and New York.
I would also like to rebut a common misconception I hear repeatedly
about the wireless industry: that we are not accountable. In most
states, U.S. Cellular files detailed reports demonstrating our
accountability for what we do with these public funds. I can assure you
that this company is using Federal support in the manner that Congress
originally intended: to provide rural consumers with high-quality
service that is comparable to what is available in urban areas. Make no
mistake, we are delivering on our promise and will continue to do so in
the coming years with support from the USF. Wireline carriers do not
have the same level of accountability, and we believe the Universal
Service system is significantly over-subsidizing their networks because
the system provides support on a ``the more you spend, the more you
get'' basis.
The Joint Board's rationale for a cap is that the Fund will become
unsustainable. It doesn't, however, explain what that means.
Nor do the Board's numbers add up. We calculate that even if you
accept the Board's unsupported projection that the Fund could increase
by another $1 billion in the next year, this would add only 31 cents to
the monthly Federal Universal Service charge to consumers. Can someone
please tell me, how does this represent a crisis--especially when
wireline carriers continue to lose lines but are allowed to draw $3
billion per year?
If the Senators believe that such an increase is too much for
consumers to bear, then why not ask the wireline industry to share the
burden? After all, wireline carriers draw three times what we do.
A much more responsible and competitively neutral fix is for the
system to only provide support to the carrier that serves the customer.
The FCC is fully capable of figuring out how much USF support is needed
in a given area to provide consumers with the ability to choose the
service that best suits their needs. I am told that's what Congress
promised. Until that happens, Fund growth is not going to be controlled
and consumers are not going to see the benefits described above.
Mr. Chairman and members of the Committee, I greatly appreciate the
opportunity to discuss this issue with you today and appreciate your
interest. I believe that the Joint Board's ultimate recommendation, and
the FCC's subsequent decision, will have a profound impact on rural
Americans in your states, and on the host of competitive service-
providers that are excited about offering the best telecommunications
services possible. On behalf of U.S. Cellular, we hope that you can
help ensure that those services are deployed as quickly and efficiently
as possible without resorting to draconian and ill-conceived solutions.
Exhibit 1
Per-Minute Cost ($) of Wireless Service
(Including USF Contributions)
(1998-2005) \3\
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Senator Stevens. Thank you, Mr. Rooney.
---------------------------------------------------------------------------
\3\ Sources: FCC, Trends in Telephone Service, Table 19.17 (Feb.
2007); Implementation of Section 6002(b) of the Omnibus Budget
Reconciliation Act of 1993--Annual Report and Analysis of Competitive
Market Conditions With Respect to Commercial Mobile Services, WT Docket
No. 06-17, Eleventh Report, 21 FCC Rcd 10947 (2006), App. A, Table 10
---------------------------------------------------------------------------
Our next witness is Mr. Roger Nishi.
Mr. Nishi?
STATEMENT OF ROGER NISHI, CHAIRMAN, ORGANIZATION
FOR THE PROMOTION AND ADVANCEMENT OF SMALL
TELECOMMUNICATIONS COMPANIES (OPASTCO); VICE
PRESIDENT OF INDUSTRY RELATIONS, WAITSFIELD AND
CHAMPLAIN VALLEY TELECOM; ON BEHALF OF NATIONAL
TELECOMMUNICATIONS COOPERATIVE ASSOCIATION;
WESTERN TELECOMMUNICATIONS ALLIANCE AND
THE INDEPENDENT TELEPHONE AND
TELECOMMUNICATIONS ALLIANCE
Mr. Nishi. Good morning, Mr. Chairman and distinguished
members of the Committee. I'm Roger Nishi, from Waitsfield and
Champlain Valley Telecom, in Vermont, and I'm the current
Chairman of OPASTCO, the Organization for the Promotion and
Advancement of Small Telecommunications Companies. Our company
is also a member of NTCA, the National Telecommunications
Cooperative Association. Today, I will speak on their behalf,
as well as WTA, the Western Telecommunications Alliance, and
ITTA, the Independent Telephone and Telecommunications
Alliance.
Thank you for inviting me here today to testify on behalf
of these fine organizations who are the founding members of the
Coalition to Keep America Connected.
Let me start by emphasizing that all four organizations
applaud what the Joint Board has done, and in recognizing that
the program is in serious jeopardy of becoming unsustainable if
immediate action is not taken.
The four organizations strongly support the recommendation
to immediately impose an interim cap in the high-cost support
received by competitive eligible telecommunications carriers.
We urge Congress to also support the recommendation.
We believe the recommendation is the most logical and
equitable way in which to rein in the rapid growth of the high-
cost Universal Service program while the FCC and Congress
contemplate long-term reforms to sustain the viability of the
whole Universal Service program, which includes schools and
libraries, rural healthcare, and the low-income programs. So,
the whole universe, we believe, needs to be looked at, in terms
of making sure it's sustainable.
We believe that any entity or person who proclaims support
for strong and viable Universal Service in the future should,
and must, support the Joint Board's recommended interim plan.
The adoption by the FCC of an interim cap on high-cost
support provided to CETCs is equitable. Since 1993, caps have
limited the amount of support available to rural incumbent
local exchange carriers from the high-cost loop support
mechanism. Since July 2001, when caps were re-based by the FCC,
rural ILECs have foregone $2.5 billion in Federal high-cost
support. Waitsfield and Champlain Valley Telecom has lost a
significant amount of high-cost loop support.
I will share that this uncertainty in funding levels has
made it more difficult to budget and also to plan for the long
term. But our company, like hundreds of rural companies
throughout the United States, has always had a community-first
approach to doing business, and this means building to all, and
serving all of our customers, rather than looking to only serve
the lucrative and easy-to-serve customers.
In their recommendation, the Joint Board states that the
identical support rule is dated, and may not be the appropriate
approach to calculating support for CETCs. The four
associations couldn't agree more with this. The identical
support rule bases the support received by CETCs on the
unrelated costs of the rural ILECs providing ubiquitous service
throughout their territories. For years, CETCs--primarily
wireless carriers--have reaped windfalls of support through the
illogical identical support rule. Moreover, the rules have
allowed CETCs, upon designation, to immediately begin receiving
the rural ILEC's cost-based per-line support amount for all of
their existing customers in the designated territory whom they
were more than likely serving successfully without any such
support. We advocate the elimination of the identical support
rule, and believe that CETCs should be required to demonstrate
their own costs in order to potentially qualify for support.
At the same time, we need to keep in mind that this
recommendation is only interim. This is only an interim cap.
Dollars will continue to flow to the CETCs. And, most
importantly, an interim cap on CETCs will not harm the
availability of the Universal Service throughout the country,
since virtually all Americans have access to service from at
least one eligible telecommunications carrier, and, in most
cases, more than one.
The organizations feel that it's important for the FCC to
adopt the recommendations without modification. The Joint Board
has done an excellent job, and thought this out in a very
reasonable manner.
And, in the long term, Congress and the FCC should expand
the base of contributors to Universal Service, and, as
previously stated, the identical support rule should be
eliminated, and CETCs' support should be based on their own
costs.
To conclude, short-term action is required for long-term
stability. And, therefore, Congress should advocate for the
FCC's immediate adoption of the Joint Board's recommendation to
impose an interim cap on high-cost support provided to CETCs
without modification.
The recommended cap would effectively and fairly stem the
rapid growth in support to CETCs caused in large part by the
identical support rule while Congress, the FCC, and all the
parties in this room work together to come up with
comprehensive reforms that will address the issues for the long
term.
The Joint Board's recommendation is an interim step to
protect the Universal Service Fund from exploding even further,
and will benefit all eligible telecommunications providers,
both wireline and wireless, in the long term.
Once again, the organizations believe that anyone who
claims to be a supporter of Universal Service and the Fund and
its goal should be a strong advocate for this recommendation.
Thank you for your time today.
[The prepared statement of Mr. Nishi follows:]
Prepared Statement of Roger Nishi, Chairman, Organization for the
Promotion and Advancement of Small Telecommunications Companies
(OPASTCO); Vice President of Industry Relations, Waitsfield and
Champlain Valley Telecom; on Behalf of National Telecommunications
Cooperative Association; Western Telecommunications Alliance; and
Independent Telephone and Telecommunications Alliance
Mr. Chairman and members of the Committee, I am Roger Nishi, Vice
President of Industry Relations for Waitsfield and Champlain Valley
Telecom headquartered in Waitsfield, Vermont. Also, I serve as Chairman
of the Board of the Organization for the Promotion and Advancement of
Small Telecommunications Companies (OPASTCO) and am a member of the
National Telecommunications Cooperative Association (NTCA). I am also
speaking for the Western Telecommunications Alliance (WTA) and the
Independent Telephone and Telecommunications Alliance (ITTA). Thank you
for inviting me to testify today on behalf of all of these
organizations who are the founding members of the Coalition to Keep
America Connected.
Waitsfield and Champlain Valley Telecom is a privately owned,
independent company now in its third generation of ownership by the
Haskins family. We provide local and long distance telephone service,
high-speed Internet service to the Mad River and central Champlain
Valley regions and cable television to our customers in the Mad River
Valley. The company is proud that it has recently achieved one hundred
percent coverage of broadband service to our telephone customers.
All four organizations strongly support the Federal-State Joint
Board on Universal Service's (Joint Board) recommendation to
immediately impose an interim cap on the high-cost support received by
competitive eligible telecommunications carriers (CETCs) and we urge
Congress to also support the recommendation. It is important that the
Federal Communications Commission (FCC) adopt the recommendation
without modification. The recommendation is the most logical and
equitable way in which to rein in the rapid growth of the High-Cost
Universal Service program while the FCC and Congress contemplate long-
term reforms to sustain the Universal Service Fund (USF).
The adoption by the FCC of an interim cap on only the high-cost
support provided to CETCs is equitable. Since 1993, caps have limited
the amount of support available to rural incumbent local exchange
carriers (ILECs) from the high-cost loop support (HCLS) mechanism,
which is the largest of the support mechanisms through which these
carriers receive funding. Since July 2001, when these caps were ``re-
based'' by the FCC, rural ILECs have forgone over $2.5 billion in
Federal high-cost support. My company, Waitsfield and Champlain Valley
Telecom, has lost $6.23 million in high-cost loop support in the last 6
years. The capping mechanism on HCLS has created significant
unpredictability for rural ILECs from year to year. This has
constrained our ability to make further improvements to our local
network. Yet, we have persevered because of our commitment to our
community. Our company, like hundreds of rural companies throughout the
United States, has always had a ``community first'' approach to doing
business. And this means serving all of our customers rather than
looking to serve only the lucrative and easy to serve customers as so
many of our competitors do. We must recognize that since CETCs have
come into existence, the high-cost loop support they receive has been
permitted to grow unfettered as the number of CETCs has grown and as
their line counts have grown. It is baseless to assert that an interim
cap applied only to support received by CETCs would not be
competitively neutral.
In their recommendation, the Joint Board states that the identical
support rule is dated and may not be the appropriate approach to
calculating support for CETCs. The identical support rule bases the
support received by CETCs on the unrelated costs of the rural ILEC
providing ubiquitous service throughout the area. For years CETCs--
primarily wireless carriers--have reaped windfalls of support through
the illogical identical support rule. Moreover, the rules have allowed
CETCs, upon designation, to immediately begin receiving the rural
ILEC's cost-based per-line support amount for all of their existing
customers in the designated territory, whom they were successfully
serving without any support. Imposing an interim cap on CETC support is
a necessary measure to contain the rapid growth in unjustified
distributions to these carriers while Congress and the FCC address
long-term policy changes to the USF. We advocate the elimination of the
identical support rule and believe that CETCs should be required to
demonstrate their own costs in order to potentially qualify for
support.
AT&T, the largest wireless carrier in the United States, has
submitted a plan for stabilizing the High-Cost program in the short
term that proposes much bolder steps for addressing the growth in CETC
support than the Joint Board's Recommended Decision. Specifically,
AT&T's plan would immediately halt the approval of new CETCs and impose
a freeze on the number of lines for which wireless CETCs receive high-
cost support. Also, it would reduce by 25 percent the support that
wireless CETCs receive through the support mechanisms designed to
replace access charges. If the Nation's largest wireless carrier is
willing to acknowledge the source of the runaway growth in the High-
Cost program, and recommend a strong, targeted interim plan to address
it, the FCC should be willing to adopt the more modest recommendations
of the Joint Board. And this Committee should encourage the FCC to
support the Joint Board recommendation.
The Joint Board points out that as a result of the rapid and
excessive growth in support received by CETCs, the High-Cost program is
in serious jeopardy of becoming unsustainable if immediate action is
not taken. Support for CETCs has grown from $15 million in 2001 to
almost $1 billion in 2006 and based on current estimates, the support
received by these carriers will reach at least $1.28 billion in 2007,
almost $2 billion in 2008, and $2.5 billion in 2009 if action is not
taken to contain it. In addition, the USF contribution factor for
second quarter 2007 is 11.7 percent which is the highest it has ever
been. The chart attached at the end of this testimony illustrates these
points. The Joint Board's recommendation to impose an emergency,
interim cap on the support received by CETCs is essential to stabilize
the size of the High-Cost program until measures can be adopted that
will sustain the program for the long term. Any entity or person who
proclaims support for a strong and viable USF in the future should
support the Joint Board's recommended interim plan.
The recommended interim cap obviously would not stop funding from
continuing to flow to CETCs, nor would it adversely affect wireless
service in rural areas. Most importantly, an interim cap on CETCs
support would not harm the availability of Universal Service throughout
the country since virtually all Americans have access to service from
at least one eligible telecommunications carrier (the ILEC) and, in
most cases, more than one.
The organizations that I am speaking for today agree with the Joint
Board's recommendation for the duration of the interim cap to be 1 year
from the date of any Joint Board recommended decision on comprehensive
high-cost Universal Service reform. The Telecommunications Act of 1996
requires the FCC to act on a Joint Board recommendation within 1 year
after receiving it. Therefore, by 1 year from the date of a Joint Board
recommendation on comprehensive Universal Service reform, the FCC will
adopt an Order that provides a long term approach to addressing the
excessive and unjustified growth in CETC funding.
We are also in agreement with the Joint Board's recommendation to
impose a cap on CETC support for each state. This approach would
encourage state commissions to be very judicious in their decisions
regarding applications for eligible telecommunications carrier
designation, because the designation of any additional eligible
telecommunications carriers would not draw additional Federal dollars
into the state; it would simply require a fixed amount of funding to be
reallocated among all of the CETCs in the state. At the same time, a
state-based cap would still allow state commissions the flexibility to
designate additional eligible telecommunications carriers if they
believe that it will serve the public interest.
In the long term, Congress and the FCC should expand the base of
contributors to the USF. And, as previously stated, the identical
support rule should be eliminated and CETC support should be based on
their own costs.
As I stated previously, Congress should urge the FCC to quickly
adopt the Joint Board's recommendation. The recommended cap will not
harm rural consumers and will not take support away from rural America.
As I have pointed out, ILECs are not responsible for escalating the
size of the program. Consumers are paying more so that a narrow class
of carriers can receive support that is not based on their costs. The
Joint Board's recommendation is a vital step toward fixing this
problem.
In conclusion, Congress should advocate for the FCC's immediate
adoption of the Joint Board's recommendation to impose an interim cap
on high-cost support provided to CETCs, without modification. The
recommended cap would effectively and fairly stem the rapid growth in
support to CETCs--caused in large part by the identical support rule--
while Congress and the FCC consider comprehensive reforms to the High-
Cost program that will address the issue for the long term. The Joint
Board's recommendation is an interim step to protect the USF from
exploding even further and would benefit all eligible
telecommunications carriers, including wireline, wireless and broadband
services. Once again, anyone who claims to be a supporter of the
Universal Service Fund and its goals should be a strong advocate for
this recommendation. Thank you.
----------------------------------------------------------------------------------------------------------------
Dollar % of Total
Rural High-Cost Support 3rd Quarter 3rd Quarter 3rd Quarter % Change Change 3Q Two-Year
Program 2005 2006 2007 3Q 2005- 2005- 3Q Support
Support Support Support 3Q 2007 2007 Increase
----------------------------------------------------------------------------------------------------------------
($ Millions)
----------------------------------------------------------------------------------------------------------------
Rural ILEC $630.9 $623.8 $634.0 0.49% $3.1 3.4%
CETC $136.2 $165.8 $225.1 65.3% $88.9 96.6%
----------------------------------------------------------------------------------------------------------------
Total $767.1 $789.6 $859.1 12.0% $92.0 100.0%
----------------------------------------------------------------------------------------------------------------
Source: Universal Service Administrative Company
Senator Stevens. Thank you, Mr. Nishi.
Our next witness is Mr. Jonathan Foxman.
Mr. Foxman?
STATEMENT OF JONATHAN D. FOXMAN, PRESIDENT AND CEO, CHINOOK
WIRELESS
Mr. Foxman. Mr. Vice Chairman and members of the Committee,
thank you for the opportunity to be here and testify before
you. I appreciate your focus on this matter.
Chinook Wireless is a small to mid-sized company providing
wireless services to customers throughout Montana and northern
Wyoming. We also recently acquired licenses to provide these
services throughout the rest of Wyoming and the western
Dakotas.
We own and operate our own network of cell sites and
switching core, call center, and retail stores all in Montana
and Wyoming, connecting us intimately with our portion of rural
America. We believe we are answering the urgent need for better
telecommunications services and public safety in rural America.
To date, we have done so without any support from the Universal
Service program or any other public program; however, with that
support, we could do so much more to answer what is truly an
urgent need.
As a privately funded business, we have to build and
operate as efficiently as possible. Our lenders and investors
set very finite limits, and they won't fund infrastructure
without a business case to support it. In many of the rural
areas where wireless is most urgently needed, particularly for
public safety, we wouldn't earn enough revenue to justify the
necessary investment, yet those citizens deserve and demand the
benefits of wireless service, too. The fundamental problem is
that the high cost of deploying cell sites in these areas,
while so important for public safety, economic development, and
other reasons, would not generate the necessary revenue. We
recognize the need, but we simply cannot meet it with private
funding alone.
Chinook has applied for State certification to receive
Universal Service funds precisely so we can answer the unmet
needs of rural America. For us, and for other CETCs like us,
the Joint Board's recommended cap would limit, or even
eliminate, our ability to meet those needs. At the same time,
though, it would continue to fund incumbent carriers in those
areas. This is simply not equitable. What best serves the
public interest is fair competition. Competition brings prices
down, and service quality up, and increases the choices
available to consumers. We, therefore, urge Congress to insist
that any action taken by the Commission be fair and
competitively neutral.
We also urge Congress to reconsider whether an interim
measure is necessary at all. Instead, greater efforts could be
made to rapidly and diligently fix the Universal Service
system. The FCC has worked on this issue for 11 years, and has
more than enough information now to make a fair determination.
It could easily adopt reforms within 1 year without using a
cap. It only took a year for the Commission to implement
spectrum auctions, and the agency implemented local competition
under the 1996 Act in a single year. This is no different, just
another complex undertaking that the agency certainly does have
the staff expertise and resources to accomplish.
Finally, we would urge Congress to consider that the issues
relevant for fixing the system, in fact, highlight that what is
wrong with it today is not the distributions that enable
wireless to bring the benefits called for in the 1996 Act to
underserved regions of rural America. Most significant among
these are duplicative funding and distributions based on a
cost-plus methodology.
Regarding duplicative funding, the drafters of the 1996 Act
knew the size of the Fund would increase for disbursements to
competitors. They were trying to encourage competition in order
to lower prices and increase service quality for consumers.
What they did not anticipate was that existing carriers would
not lose funding for lines they no longer had to maintain,
lines for customers that decide to use a competitor's services.
Duplicate funding was actually slated for elimination by the
FCC years ago. Acting on it today could save the Fund $300
million per year or more.
Regarding cost-plus, it is inherently problematic to reward
inefficiency by providing support on the basis that the more
you spend, the more you get. If we were serious about reforming
USF, then this reward for inefficiency must be eliminated.
In conclusion, I believe there's so much to be lost by
implementing the Joint Board's recommended cap. As a tangible
result, rural Americans would not gain the public safety,
economic development, and other benefits of wireless service
that they need, deserve, and demand. As an intangible result,
the Commission would have failed to meet the competitive
neutrality standard of the 1996 Act. We view this as a very
important matter. We ask of our government to level the playing
field rather than picking winners and losers in a free
marketplace. Only fair competition will bring the best services
at the lowest prices to the most consumers.
Mr. Vice Chairman and Members of the Committee, I greatly
appreciate your time and attention to this matter.
Thank you.
[The prepared statement of Mr. Foxman follows:]
Prepared Statement of Jonathan D. Foxman, President and CEO,
Chinook Wireless
Chairman Inouye, Ranking Member Stevens, and Members of the
Committee, my name is Jonathan Foxman and I am the President and CEO of
Chinook Wireless. I thank you for this opportunity to be here to
discuss the Universal Service system.
Chinook Wireless opposes the cap recommended by the Joint Board,
and in this testimony provides specific proposals for rapid and actual
reform of the Universal Service system.
I. Chinook Wireless--Background
Our company provides wireless services to customers throughout
Montana and northern Wyoming, and recently acquired licenses to also
provide these services in central and southern Wyoming and western
North Dakota and South Dakota.
We are a fully capable wireless communications company with our own
network of cell sites and switching core, call center, and retail
stores, all in Montana and Wyoming, representing a variety of high
quality jobs in the markets we serve. Over the last 2 years, we have
made a significant investment to upgrade and greatly expand our network
and systems to bring state-of-the-art wireless voice and data
communications to much of Montana. We now provide broadband wireless
voice and data, including access to the Internet. We believe we are
answering the urgent need for better telecommunications services and
public safety in rural America. With Universal Service support, we
could do so much more to answer what is truly a desperate need.
The fundamental limitation to addressing this need is that the high
cost of deploying cell sites in these areas, while so important for
public safety and other reasons, cannot be paid back by merely a
handful of customers.
II. Universal Service Funds Are Critical for Extending Wireless Service
to Rural Areas
To date, unlike any wireline carrier we know, we have built our
business in rural America without subsidies of any kind. We have built
our business entirely with private investment and loans. We do not have
a guaranteed rate of return, we have not received government funding,
and we do not have an embedded subscriber base. As a result, we are
what I would term, ``business case limited''. We have to build and
operate as efficiently as possible. Our lenders and investors set very
finite limits, and they will not fund infrastructure without a business
case to support it. This constrains how much coverage we can provide in
rural and remote areas where the need is greatest. Yet, citizens who
live in and travel through these areas both deserve and demand wireless
service, particularly for public safety purposes. We have had people
beg us to build cell sites on their farms so they can have decent phone
service. We have also had people tell us that they cannot understand
why there is no wireless service on some of the highways they
frequently travel. We want to serve these customers. We recognize the
need, but we simply cannot meet it with private funding alone.
Therefore, we have asked the Montana Public Utility Commission for
authority to be eligible for Universal Service Fund (USF) support. This
support would greatly expand our company's ability to build systems to
serve areas that we otherwise could not reach. We urge Congress and
continue to urge the FCC to recognize that there is a critical need in
rural America for improved telecommunications services, particularly
the public safety benefits that only wireless service can provide.
III. The Recommended Cap Would Inhibit Competition, Contravene the
Intent of Drafters of the 1996 Act, And Would Not Repair Actual
Flaws in the Universal Service System
A. Capping Funds Only to Competitive Providers Impairs the Competitive
Benefits For Consumers Envisioned By Drafters of the 1996 Act
We strongly oppose the Universal Service cap recommended by the
Joint Board. This proposal would limit funding for ``competitive
carriers'' (CETCs), a group that includes all wireless providers in the
Universal Service system, but not incumbent landline carriers in the
same rural areas. Any action taken should be balanced and applied
equitably to all carriers, the older incumbents as well as their newer
competitors.
Among ``the four critical goals set forth for the new Universal
Service program'' the FCC identified in implementing the
Telecommunications Act of 1996, was the goal ``that the benefits of
competition be brought to as many consumers as possible.'' \1\ The cap
proposed by the Joint Board in the Recommended Decision would directly
conflict with this goal of bringing the benefits of competition to
consumers. That would be irresponsible. Where competition exists, it
has dramatically driven down service prices and increased quality of
service.\2\ Universal service funding to competitors as well as
incumbent carriers allows that beneficial competition to take place.
B. The 1996 Act Was Intended To Increase Funding to Competitive
Carriers--But it Was Also Expected To Result in Reduced Funding
to Carriers That Were Less Efficient and Lost Customers,
Whether They Proved To Be Incumbents Or Newer Carriers
We understand the alarm over increases in the Fund, but those
increases are caused by permitting surpluses and inefficiencies to
remain in the program. Increased payouts to competitors were foreseen
by the drafters of the 1996 legislation.\3\ Growth in the Fund was
viewed as necessary in order to bring new technologies into rural
America without materially harming rural ILECs in the short-term.\4\
What legislators did not anticipate \5\ was that after competitors
entered rural markets, there would be a failure of will by policymakers
to concomitantly reduce funding to carriers who lost customers or used
funds inefficiently.\6\ We understand that regulatory decisions in
these matters cannot be universally popular with all industry
participants, regardless of the choices made--but consumers, not
carriers, are the intended beneficiaries of Universal Service.
For the short term at least, we think decreasing phone service
rates \7\ will ensure customer bills do not increase overall, despite
increases in the Fund.\8\ But we are concerned that imposition of the
cap might permit the Commission to again avoid actual reform of the
Universal Service system. So-called temporary measures often stretch
into years of prolonged renewals.\9\
Rather than risk infinite reduction of rural wireless services, we
urge Congress to strongly suggest that the Commission rapidly and
finally repair the Universal Service system, keeping in mind the goals
of reducing inefficiencies and facilitating true competition, as
mandated by the 1996 Act. It is crucial to level the playing field,
which will improve prices, service quality and choice for consumers,
rather than permitting cuts in funding only for newer market entrants.
The FCC has scrutinized Universal Service reform for years,
repeatedly requesting comments. The proposed cap would only permit
maintenance of this cycle. Instead, it is time to fix the system. The
Commission could adopt meaningful reforms within a year, without using
a cap that would injure rural citizens' access to wireless service. The
FCC implemented spectrum auctions within a year, and drafted and
released its Local Competition Orders under the 1996 Act within a
single year as well. This is no different--just another complex
undertaking that the agency certainly does have the institutional
expertise and resources to accomplish.
IV. Actual Flaws Should Be Repaired, In Order To Reduce Fund Size More
Equitably
A. Solve the ``Cost-Plus'' Problem
Today, some carriers receive support on a ``the more you spend, the
more you get'' basis, termed ``cost plus.'' There is no scrutiny of
whether expenditures are efficient or appropriate. In addition, the
current system guarantees a comfortable rate of return. These factors
are incentives to inefficiency, motivating more spending on overhead
and marketing, rather than finding the most efficient method of
delivering service to a customer.
If the FCC would modify or eliminate ``cost plus'' support, that
will reduce the Fund's size and free up resources that instead can be
invested in broadband or other technologies--because competition will
help discourage inefficiencies that regulators cannot effectively
excise. States including Montana do not allow CETCs to serve only low-
cost areas. Therefore, we must be efficient in building and operating
our network. Support for all carriers should be based on the cost of
providing an efficient network, in order that any carrier that wants to
make additional expenditures will do so only out of its own pocket, not
the public purse.
B. Make Support Fully Portable
Portable support means support funds that travel with a customer:
the carrier that retains a customer, receives the support for serving
that customer's line. And logically, when a carrier loses a customer,
the support should stop arriving. This approach was upheld by the Fifth
Circuit Court of Appeals in the case of Alenco Communications, Inc. v.
FCC:
. . . [T]he [FCC's Universal Service] order provides that the
Universal Service subsidy be portable so that it moves with the
customer, rather than stay with the incumbent LEC . . . The
purpose of Universal Service is to benefit the customer, not
the carrier. ``Sufficient'' funding of the customer's right to
adequate telephone service can be achieved regardless of which
carrier ultimately receives the subsidy.\10\
Yet, inexplicably, this course was reversed and now, the cost of
USF subsidies that are still being paid to wireline carriers for
customers those carriers have lost (lines that were built long ago and
paid for many times over) is over $300 million per year. Wireless
carriers, in contrast, lose support when we lose customers. The
Commission can reduce waste in the system by requiring that a carrier
no longer serving a customer give up its claim to funds initially
relating to that connection.
V. Conclusion: Competition Is Encouraging a Beneficial Paradigm Shift
In the broader perspective, a nationwide paradigm shift is taking
place--a shift toward consumer desire for the benefits of competition:
lower prices, higher quality service, and more options. Some markets
are already supporting multiple, often complimentary, communications
technologies. To the extent government chooses to aid extension of
these technologies to the ``last mile,'' all services should be placed
on an equal footing, and all market participants should receive equal
support per customer, based on the costs of building an efficient
network in a particular area. The FCC reached these conclusions between
1996 and 2001, and they remain valid today.
Universal Service improvements should be consistent with the core
principles of the 1996 Act: that all Americans deserve the benefits of
competition, and support should work with competition, rather than
hamper the success of a free market. Support should be distributed
efficiently, freeing up funds for investments in broadband.
Government's role is not choosing winners in the world of business.
Instead, a level playing field can support competition for the benefit
of consumers. The current focus on new entrants simply distracts
attention from true issues threatening the future of USF.
I urge Congress to oppose this inequitable cap on funds for
competitive carriers. Instead, Chinook Wireless supports rapid and
diligent reform of the underlying system, in order that the goals
Congress enacted in 1996 may finally be realized. Competition can
coexist with a policy of supporting service to underserved areas. By
encouraging a level playing field and efficiencies in the use of
funding, regulators can curb Fund growth while providing consumers with
the benefits of Universal Service and competition.
Endnotes
\1\ Federal-State Joint Board on Universal Service, Fourth Order on
Reconsideration, 13 FCC Rcd 5318, 5321-22, para. 2 (1997) (``Fourth
Reconsideration Order'').
\2\ As an example of consumer benefits from competition: consider
the wireless industry, which became highly competitive after the
introduction of spectrum auctions in 1996. From 1995--2005, the average
cost per minute for wireless service dropped from 43 cents/minute to 7
cents/minute. See Implementation of Section 6002(b) of the Omnibus
Budget Reconciliation Act of 1993--Annual Report and Analysis of
Competitive Market Conditions With Respect to Commercial Mobile
Services, Eleventh Report, 21 FCC Rcd 10947 (2006), App. A, Table 10.
Factoring in the current 11.7 percent contribution factor, the cost of
a wireless call for 1995 is calculated at 7.8 cents/minute, as compared
to the 43 cents of 10 years earlier. In other words, even including
customers' contributions to the Universal Service Fund, competitive
forces have driven down the total amounts they pay for wireless
service, even as those customers make more and longer calls, increasing
119 to 740 average wireless minutes per month over the same 10-year
period. Id.
\3\ If concern over Fund size relates to carrier receipts, consider
the fact that wireline carriers still receive an enormous share of
Universal Service funding. In the State of Montana, in 2006, according
to the Joint Board, incumbent wireline carriers received $69.7 million
in funding, and competitive carriers such as wireless received $7.2
million in funding. See Federal-State Joint Board on Universal Service,
Universal Service Monitoring Report, Table 7.2 (2006), attached hereto
(``Monitoring Report Attachment''). Incumbent wireline carriers still
receive more than three times as much funding as their wireless and
wireline competitors, and in some states, they receive 100 percent of
Universal Service funding.
\4\ In fact, the FCC adopted a five-year transition period during
which rural ILECs would not lose support when CETCs entered. See
Federal-State Joint Board on Universal Service, Fourteenth Report and
Order, Twenty-second Order on Reconsideration, and Further Notice of
Proposed Rulemaking, 16 FCC Rcd 11244, 11294-95 (2001).
\5\ Joint Board Member Billy Jack Gregg, in testimony before the
Communications Subcommittee of this Committee, described legislative
intent and expectations in 1996 as follows:
It should not be surprising that funding for competitive ETCs
has increased. After all, before the advent of competition
incumbents received 100 percent of high-cost funding. It was
expected that as competitors gained ETC status and won
customers in high-cost areas, their high-cost funding would
rise. What is surprising is that incumbent support has not
dropped by an amount proportionate to the increase in
competitive ETC funding. . . .
Not only was the introduction of competition expected to lower
prices of telecommunications services, it was supposed to lower
the cost of Universal Service as providers competed for the
Universal Service subsidy.
Testimony of Billy Jack Gregg before Communications Subcommittee,
Senate Commerce, Science and Transportation Committee, at 6-7 (March 1,
2007), referencing House Report No. 104-204 (I) (1995), Arnold & Porter
Legislative History Pub. L. 104-104 (A&P) at 60; Senate Report No. 104-
23, A&P at 254 (1995).
\6\ In 2006, the FCC extended indefinitely the transition period
during which rural ILECs would not lose support, without enacting any
reforms. Federal-State Joint Board on Universal Service, Order, 21 FCC
Red 5514 (2006).
\7\ Consumer Price Index data shows that telephone service costs
are decreasing compared to other services, From 1995 through 2005, the
annual rate of change in the Consumer Price Index (``CPI'') for all
goods and services was 2.5 percent, while the annual rate of change for
all telephone services was -0.2 percent. In 2005, CPI for all goods and
services rose 3.4 percent, while the increase for all telephone
services was only 0.4 percent. See Monitoring Report Attachment.
\8\ The Joint Board decision did not cite any evidence that
consumers would be harmed absent a cap. And we believe any increase in
customer bills from increasing contributions will be offset by
declining rates. According to FCC analysis, average monthly rates for
wireline and wireless services have decreased, for wireless as much as
20 percent to 30 percent per year, even when the Universal Service
charge is taken into account. Average monthly combined charges for
local and interstate/international long distance telephone service,
approximately $42 in 1995, declined to approximately $28 in 2004 (the
most recent year for which average bills can be calculated). FCC,
Trends in Telephone Service, Table 3.3 (Feb. 2007) (``Trends Report'').
Average monthly charges for residential local service taken from Trends
Report at Table 13.3. Average monthly charges for residential
interstate/international long distance service calculated by
multiplying average revenue per minute by average monthly interstate
and international long distance minutes for the same year. See Trends
Report at Tables 13.4, 14.2. Wireless prices (reflected by average cost
per minute) have dropped as much as 20 percent to 30 percent per year
between 1998 and 2005. The overall decline in revenues per minute for
wireless services from 1993 through 2005 was 84.1 percent. Average
wireless service monthly bills fell by 18.7 percent from 1993-2005. See
Implementation of Section 6002(b) of the Omnibus Budget Reconciliation
Act of 1993--Annual Report and Analysis of Competitive Market
Conditions With Respect to Commercial Mobile Services, Eleventh Report,
21 FCC Rcd 10947 (2006), App. A, Table 10.
\9\ See, e.g., nn. 4 and 6, supra.
\10\ Alenco Communications, Inc. v. FCC, 201 F.3d 608, 615 & 621
(5th Cir. 2000).
Table 3.15--Total High-Cost Support Payments By State or Jurisdiction--ILECs and CETCs
[Dollars]
--------------------------------------------------------------------------------------------------------------------------------------------------------
1999 2000 2001 2002
State or Jurisdiction -------------------------------------------------------------------------------------------------------------------
ILECs CETCs ILECs CETCs ILECs CETCs ILECs CETCs
--------------------------------------------------------------------------------------------------------------------------------------------------------
Alabama 36,318,951 0 88,214,302 0 93,882,843 0 99,840,657 21,647
Alaska 67,816,605 0 70,315,653 0 74,543,499 0 79,633,434 124,846
American Samoa 124,410 0 473,151 0 458,928 0 875,238 0
Arizona 31,174,674 0 35,577,804 0 48,845,290 1,060,306 56,758,691 4,632,839
Arkansas 73,247,163 0 71,691,402 0 75,398,793 0 101,091,641 0
California 49,657,305 0 64,070,553 0 82,347,999 0 86,503,022 24,999
Colorado 43,789,464 0 53,761,542 0 62,003,540 0 66,143,448 688,329
Connecticut 958,953 0 952,617 0 1,192,074 0 1,506,436 0
Delaware 0 0 199,512 0 385,947 0 373,665 0
District of Columbia 0 0 0 0 0 0 0 0
Florida 18,547,026 0 49,781,316 0 84,627,004 0 85,609,445 0
Georgia 71,765,064 0 79,228,268 0 91,334,696 0 110,244,701 0
Guam 2,321,256 0 3,169,872 0 2,318,838 0 1,969,968 356,718
Hawaii 1,472,913 0 2,403,015 0 5,348,833 0 7,010,380 0
Idaho 29,219,598 0 35,787,777 0 44,531,158 0 49,013,604 0
Illinois 38,898,339 0 31,342,473 0 39,137,373 0 48,479,657 5,241
Indiana 17,058,453 0 30,488,022 0 42,060,071 0 47,141,468 0
Iowa 25,802,260 0 30,643,488 0 35,233,563 66,101 43,224,375 652,816
Kansas 64,603,071 0 67,053,729 0 81,019,830 5,967 94,268,913 147,749
Kentucky 19,501,563 0 29,807,009 0 36,026,757 0 57,147,036 0
Louisiana 63,648,414 0 72,467,664 0 80,748,606 0 87,583,016 0
Maine 18,968,121 0 32,099,073 0 30,927,750 0 29,496,861 0
Maryland 596,790 0 2,580,717 0 4,657,430 0 4,704,481 0
Massachusetts 641,841 0 1,285,080 0 1,657,924 0 1,340,972 0
Michigan 34,738,875 0 39,393,036 0 40,431,984 10,688 44,477,695 800,750
Minnesota 41,442,858 0 48,130,605 0 49,698,983 94,060 65,788,105 104,776
Mississippi 26,773,044 0 132,785,751 0 141,139,843 0 149,589,072 20,997,855
Missouri 50,654,082 0 65,568,381 0 73,621,807 59,280 84,225,880 90,201
Montana 43,346,418 0 45,254,916 0 51,504,570 189,660 62,361,590 470,874
Nebraska 21,377,097 0 23,729,919 0 26,378,585 0 31,464,331 0
Nevada 10,994,325 0 15,066,537 0 22,846,950 63 22,973,633 289,777
New Hampshire 8,506,026 0 8,489,304 0 9,433,625 0 11,898,687 0
New Jersey 993,234 0 3,688,155 0 6,020,140 0 3,491,193 0
New Mexico 34,527,114 0 37,100,202 0 41,421,404 0 46,221,145 210,478
New York 37,395,060 0 51,532,557 0 59,460,149 482,043 55,659,061 523,518
North Carolina 31,719,741 0 33,997,699 0 38,944,285 0 55,742,932 0
North Dakota 21,703,062 0 25,437,877 0 28,584,627 0 31,654,811 89,341
Northern Mariana Islands 5,529,978 0 3,257,226 0 3,594,740 0 3,526,267 0
Ohio 15,056,667 0 19,503,900 0 29,246,406 0 33,911,495 0
Oklahoma 58,345,860 0 67,401,390 0 76,622,223 0 85,800,208 27,921
Oregon 36,809,835 0 47,354,850 0 60,851,409 0 67,392,263 0
Pennsylvania 21,611,712 0 28,472,919 0 35,438,459 0 42,712,402 0
Puerto Rico 132,925,644 534,012 139,946,898 1,494,642 111,508,014 6,440,727 86,185,212 10,363,326
Rhode Island 0 0 25,686 0 96,477 0 60,198 0
South Carolina 40,003,113 0 46,068,145 0 55,646,667 0 71,350,010 0
South Dakota 19,478,967 0 22,225,041 0 23,913,594 0 32,003,665 347,297
Tennessee 28,449,801 0 34,482,177 0 40,665,639 69,516 46,063,270 292,623
Texas 118,600,308 0 138,101,139 0 167,610,051 99,339 188,031,058 1,152,675
Utah 10,178,430 0 12,535,251 0 14,109,453 0 18,079,066 0
Vermont 11,248,704 0 26,244,471 0 22,593,331 0 25,804,315 0
Virgin Islands 22,973,160 0 23,786,676 0 25,253,094 0 27,525,044 0
Virginia 12,837,387 0 38,477,018 0 64,489,462 0 69,908,969 0
Washington 43,165,287 0 53,885,595 0 68,815,275 8,232,717 75,016,670 3,030,131
West Virginia 22,991,175 0 63,450,822 0 72,163,053 0 80,382,176 83,529
Wisconsin 50,982,323 0 54,591,597 0 58,828,654 90 68,344,845 203,841
Wyoming 25,954,848 0 29,896,680 0 35,057,650 137,400 41,262,316 348,567
Industry 1,717,446,369 534,012 2,233,276,459 1,494,642 2,574,679,349 16,947,957 2,888,868,695 46,082,664
--------------------------------------------------------------------------------------------------------------------------------------------------------
Table 3.15--Total High-Cost Support Payments By State or Jurisdiction--ILECs and CETCs--(Continued)
[Dollars]
--------------------------------------------------------------------------------------------------------------------------------------------------------
2003 2004 2005 2006
State or Jurisdiction ---------------------------------------------------------------------------------------------------------------------------
ILECs CETCs ILECs CETCs ILECs CETCs ILECs CETCs
--------------------------------------------------------------------------------------------------------------------------------------------------------
Alabama 89,293,506 2,988,331 94,588,334 6,250,779 97,678,778 11,663,899 102,251,011 14,647,370
Alaska 88,850,054 1,403,390 95,096,980 4,973,083 100,627,607 19,646,224 98,674,638 39,994,917
American Samoa 1,230,722 0 1,860,943 0 2,317,903 0 1,496,616 0
Arizona 62,265,191 5,816,508 66,572,006 13,627,513 61,804,813 12,745,645 68,565,687 15,811,998
Arkansas 112,277,219 816,659 104,291,859 30,012,436 103,476,130 37,521,103 106,173,927 29,826,012
California 92,059,403 123,276 95,186,762 52,770 98,674,387 191,115 106,390,695 131,412
Colorado 73,651,142 2,876,978 74,987,264 8,311,404 72,049,895 7,226,901 71,123,691 8,381,643
Connecticut 2,242,663 0 2,445,617 0 2,248,744 0 2,032,395 0
Delaware 320,397 0 266,283 0 259,146 0 254,508 0
District of Columbia 0 0 0 0 0 0 0 0
Florida 80,109,504 0 81,841,610 1,939,141 81,140,368 10,309,805 76,734,600 7,593,162
Georgia 110,373,162 0 105,771,772 1,656,436 102,637,923 9,055,385 99,096,693 5,551,857
Guam 4,572,924 1,382,807 7,434,786 2,143,229 11,427,375 7,737,989 7,884,885 7,349,487
Hawaii 9,967,573 0 13,889,383 249,173 17,568,456 11,956,190 22,606,476 18,579,186
Idaho 51,909,601 0 53,012,454 0 55,055,167 0 53,095,818 0
Illinois 55,080,459 2,406 57,479,277 45 63,505,452 981 65,663,013 1,971
Indiana 53,149,059 12,474 55,299,595 173,552 54,481,006 2,151,459 57,492,699 3,325,992
Iowa 54,547,156 15,891,086 55,841,707 26,729,545 55,618,671 34,717,359 60,925,257 40,373,526
Kansas 108,785,249 2,692,475 121,727,826 7,838,024 132,251,224 46,433,044 132,055,755 53,349,474
Kentucky 59,757,468 15,999 71,749,739 276,334 75,144,011 8,456,057 75,210,951 21,800,331
Louisiana 91,029,193 0 88,157,077 14,094,355 85,913,185 25,327,599 86,366,865 40,404,837
Maine 29,725,830 832,312 27,779,495 2,241,525 24,533,155 4,278,734 25,349,043 4,860,493
Maryland 3,451,702 0 2,936,899 0 4,326,582 0 4,361,691 1,098
Massachusetts 2,120,262 0 2,493,872 0 3,634,062 0 2,707,494 0
Michigan 44,379,093 1,553,320 43,022,294 6,163,546 43,744,197 9,830,363 44,631,927 14,154,780
Minnesota 78,599,334 2,039,645 75,428,194 18,903,254 81,420,327 31,931,697 82,321,251 38,474,865
Mississippi 145,961,305 24,339,170 146,413,078 41,255,118 147,106,117 62,144,436 140,588,648 109,744,027
Missouri 92,095,987 75,773 90,894,928 168,316 85,025,623 119,889 88,435,827 122,451
Montana 65,692,180 622,224 70,960,584 1,192,629 72,677,550 4,053,156 69,709,249 7,245,084
Nebraska 44,359,887 0 49,107,561 62,706 54,422,214 1,467,516 54,668,200 2,112,482
Nevada 26,224,437 3,907,911 24,211,672 3,540,695 24,451,060 5,187,803 25,630,626 6,445,818
New Hampshire 11,384,021 0 9,372,836 0 8,731,668 0 9,568,887 103,782
New Jersey 1,533,302 0 1,442,797 0 1,332,013 0 1,289,640 0
New Mexico 46,776,559 3,770,150 47,227,016 3,538,855 49,491,285 9,019,927 48,698,361 12,158,745
New York 51,104,130 729,603 49,633,569 180,316 47,160,351 4,672,277 49,473,066 4,193,142
North Carolina 71,561,647 0 79,089,350 1,180,132 72,920,918 7,258,337 76,169,451 5,181,300
North Dakota 39,959,801 11,056,151 38,869,743 14,946,255 36,413,361 26,304,977 42,433,701 37,368,354
Northern Mariana Islands 1,652,912 0 709,640 64,674 436,572 231,156 810,480 255,954
Ohio 38,248,134 0 40,738,649 0 37,754,247 0 38,602,698 0
Oklahoma 106,262,224 (18,225) 102,410,238 538,541 108,602,175 11,585,872 107,356,983 14,789,604
Oregon 70,843,149 0 66,199,436 3,973,730 64,914,449 3,554,296 64,870,959 10,060,758
Pennsylvania 55,174,266 0 58,321,676 327,750 63,459,742 2,043,871 64,707,909 1,754,400
Puerto Rico 85,955,805 13,672,345 58,567,786 22,843,398 66,047,054 67,738,447 47,407,680 75,966,315
Rhode Island 46,491 0 56,457 0 44,472 0 37,287 0
South Carolina 79,517,759 0 78,116,203 0 76,322,172 0 82,243,845 0
South Dakota 40,952,744 7,612,395 47,824,157 13,937,378 54,108,387 23,679,409 55,972,318 27,797,012
Tennessee 52,740,553 139,741 54,408,927 337,048 53,510,220 1,174,125 52,456,962 1,547,229
Texas 211,301,637 2,278,421 229,221,439 1,111,597 226,230,724 3,786,279 205,497,036 10,678,173
Utah 23,912,518 0 22,675,062 0 23,301,638 277,767 23,719,365 240,558
Vermont 27,501,079 638,436 27,158,041 3,032,809 28,418,389 6,825,562 26,045,892 5,958,141
Virgin Islands 26,869,011 0 25,972,598 0 22,617,908 0 25,185,111 0
Virginia 76,629,469 261 75,789,178 2,887,069 72,048,998 15,263,371 67,111,638 12,167,124
Washington 72,354,489 7,939,390 68,107,492 19,806,072 65,989,527 28,397,734 64,046,469 34,724,406
West Virginia 76,909,660 1,539,760 64,041,014 4,420,527 58,577,740 7,739,910 60,104,661 9,190,040
Wisconsin 83,112,053 7,835,222 82,756,156 15,664,820 90,078,586 40,146,445 87,712,566 49,767,426
Wyoming 43,036,041 5,034,146 43,156,564 15,090,302 41,935,807 14,662,256 38,708,744 16,259,942
Industry 3,129,421,116 129,620,540 3,152,615,875 315,736,881 3,185,669,531 638,516,367 3,172,731,845 820,446,678
--------------------------------------------------------------------------------------------------------------------------------------------------------
Senator Stevens. Thank you, Mr. Foxman.
Our next witness is Mr. Joel Lubin.
Mr. Lubin?
STATEMENT OF JOEL E. LUBIN, VICE PRESIDENT, REGULATORY PLANNING
AND POLICY, AT&T SERVICES, INC.
Mr. Lubin. Thank you. Good morning. Thank you, Mr. Chairman
and Members of the Committee, for inviting us this morning to
speak on this panel.
AT&T is a long-term supporter of national Universal Service
policy. We thank you for your leadership.
AT&T is the single largest provider of telephone service in
rural America. We serve more than 7 million lines in rural
America, approximately one-third of the Nation's rural lines.
Other carriers have divested their high-cost lines or declined
to serve rural areas. We, however, have committed to serve all
customers, wherever they live. With proper support, this
commitment could and should include the deployment of next-
generation services. But, as AT&T and other carriers across
America have experienced firsthand, insufficient and unstable
Universal Service funding not only threatens the continued
quality of today's legacy services, it also is a major
deterrent to investment in advanced broadband facilities and
services.
The current Universal Service high-cost system is broken
and badly needs reform. For this reason, we support both the
short-term recommendations and the long-term goals contained in
the Federal-State Joint Board Recommended Decision. High-cost
funding has reached an annual high water mark of $4 billion,
and is already racing to exceed that level. As the high-cost
fund has careened out of control, it has become increasingly
impossible to consider, much less implement, long overdue
reform measures. The Joint Board proposes to rein in the
explosive growth by imposing an interim emergency cap on
support of competitive eligible telecommunication carriers,
CETCs. The Board's interim solution provides a temporary and
tailored reform measure that should bring needed discipline to
the Fund. Today, competitive ETCs received almost $1 billion in
2006. Five years ago, it was $15 million. And at this point,
the funding is not targeted to underserved areas. I'm going to
repeat that point. The targeting today is not targeted to
undeserved areas. Consumers are, in many cases, footing the
bills to subsidize multiple competitive ETCs vying for the same
customers in the same neighborhoods, and often as many as three
or four wireless ETC lines in the same household. Because high-
cost support to competitive ETCs is expected to increase to $2
billion next year, $2.5 billion in 2009, an interim cap is
important to prevent further increases due to current rules.
We support this measure, even though there will be some
adverse impacts. Many carriers, including AT&T, our wireless
enterprise, will be required to shoulder at least a short-term
reduction in otherwise certain funds. In light of this, we have
provided specific comments to the FCC on ways to minimize
disruptions to existing carrier investment plans. Let's not
forget, there will be money, still, the following year, that
still could be used for cell sites.
In the end, however, the short-term challenge is a small
price to pay for immediate Fund stabilization and headroom to
engage in reasoned exploration of comprehensive reform,
including the right way to promote broadband deployment and
wireless coverage in rural, underserved areas without
overburdening an already overburdened system. AT&T would like
to share with you its vision of Universal Service reform, for
if we don't move to a long-term solution, we've not really
accomplished much.
The second aspect of the Joint Board's recommendation is
looking at long-term solutions. In addition to the interim cap
on competitive ETC funding, comprehensive reform must embrace
the following three elements:
Number one, replacement of the existing revenue-based
contribution mechanism with a telephone-numbers connections-
based solution.
Number two, reform intercarrier compensation to preserve
Universal Service during the transition to a fully deployed
broadband environment. Let me be very clear on this point. When
broadband gets fully deployed, the current access charges
vaporize. They go away. This needs to be addressed.
Number three, reform of existing Federal high-cost funding
mechanism to promote deployment of next-generation broadband
and expanded and improved wireless service in rural areas.
Let's focus on the third element. We specifically propose that
the FCC make available funding in a pilot program designed to
support deployment of lower-cost higher-speed broadband
alternatives in underserved rural areas. Similarly, the FCC
should identify areas that currently lack reliable mobile
wireless service. Each pilot program that we suggested should
be addressed by and created by the Commission, a single
provider would be eligible to obtain funding within a specific
geographic area in order to provide service to the underserved
areas. Such pilot programs would provide the FCC much-needed
experience and information about funding levels and other
issues that will enable the Commission to craft the right
incentives to support deployment to underserved areas.
Thank you. And I look forward to your questions.
[The prepared statement of Mr. Lubin follows:]
Prepared Statement of Joel E. Lubin, Vice President, Regulatory
Planning and Policy, AT&T Services, Inc.
Good morning. Thank you, Chairman Inouye, Vice Chairman Stevens,
and members of the Committee for inviting me here today. AT&T is a
long-time supporter of our national policy of Universal Service and of
recent efforts to sustain that policy through meaningful reform. In
this regard, we salute the leadership of Chairman Inouye, Vice Chairman
Stevens, and the work of the entire Committee.
AT&T is the single largest provider of telephone service to rural
America. We serve more than seven million rural access lines, nearly
one-third of the rural lines in the Nation. At the same time, AT&T
receives a disproportionately lower share of high-cost funding to
provide this service. Under similar conditions, other carriers have
divested their high-cost lines, or declined to serve rural areas. AT&T,
however, remains committed to serve all customers, wherever they live.
With proper support, this commitment could--and should--include the
deployment of next-generation services. But as AT&T and other carriers
across America have experienced firsthand, insufficient and unstable
Universal Service funding not only threatens the continued quality of
today's legacy services; it also is a major deterrent to investment in
advanced, broadband facilities and services.
The current Universal Service high-cost support system is broken
and badly needs reform. For this reason, we support both the short term
recommendations and the long term goals contained in the Federal-State
Joint Board Recommended Decision. High-cost funding has increased 54
percent in the last 5 years--and is already racing to exceed that
level. As the high-cost fund has careened out of control, it has become
increasingly impossible to consider, much less implement, long-overdue
reform measures. The Joint Board proposes to rein in the explosive
growth by imposing an interim, emergency cap on support to competitive
Eligible Telecommunications Carriers (``ETCs'').
The Board's interim solution provides a temporary and tailored
reform measure that should bring needed discipline to the fund. In the
past 5 years, funding for competitive ETCs has increased sixty-seven
fold from $15 million (roughly .5 percent of the overall Fund) to $1
billion (25 percent of the overall Fund). And this funding is not
targeted to underserved areas: consumers are in many cases footing the
bill to subsidize multiple competitive ETCs vying for the same
customers in the same neighborhoods and often as many as three or even
four wireless ETC lines in the same household. Because high-cost
support to competitive ETCs is expected to increase to $2 billion next
year, an interim cap is necessary to prevent further increases due to
the designation of additional competitive ETCs as well as line growth
among current ETCs.
We support this measure even though there will be some adverse
impacts. Many carriers, including AT&T, will be required to shoulder at
least a short-term reduction in otherwise certain funding. In light of
this, we have provided specific comments to the FCC on ways to minimize
disruptions to existing carrier investment plans. In the end, however,
this short-term challenge is a small price to pay for immediate Fund
stabilization and the breathing space to engage in reasoned exploration
of comprehensive reform, including the right way to promote broadband
deployment and wireless coverage in rural underserved areas without
overburdening an already overburdened system.
AT&T would like to share with you its vision of Universal Service
reform, the second aspect of the Joint Board's Recommended Decision. In
addition to the interim cap on competitive ETC funding, comprehensive
reform must embrace the following elements:
1. Replacement of the existing revenues-based contribution
mechanism with a telephone numbers/connections based mechanism.
2. Reform of intercarrier compensation to preserve Universal
Service during the transition to a fully deployed broadband
environment. Let me be very clear on this point. When broadband
gets fully deployed current access charges vaporize. They go
away. This needs to be addressed.
3. Reform of the existing Federal high-cost funding mechanisms
to promote deployment of next-generation broadband, and
expanded and improved wireless service, in rural areas.
Let's focus on this third element. We specifically propose that the
FCC make available funding in a pilot program designed to support
deployment of lower-cost, higher-speed broadband alternatives in
underserved rural areas. Similarly, the FCC should identify areas that
currently lack reliable, mobile wireless services. In each pilot
program created by the Commission, a single provider would be eligible
to obtain funding within a specific geographic area in order to build
new facilities to provide service to underserved populations. Such
pilot programs would provide the FCC much needed experience and
information about funding levels and other issues that will enable the
Commission to craft the right incentives to support deployment to
underserved areas.
Finally, policymakers should not be enticed by seemingly easy
solutions. For instance, there has been much attention placed on the
so-called ``identical support'' rule, which allows all competitive ETCs
to receive the same per-line support in a particular study area that
the ILEC receives, regardless of their own costs, service territory or
circumstances. We agree that this rule is not in the public interest,
but the problem cannot be addressed by modifying this rule alone, as
the root of the problem runs deeper. Rather, the problem is that the
rules fail to identity rural areas where the support is most needed to
preserve Universal Service. The result is that many rural areas receive
no funding at all, and other areas that are not particularly rural or
high cost receive significant support.
The identical support rule exacerbates this problem by allowing all
ETCs that serve a given area to receive the same support that is poorly
distributed in the first instance. Thus, the only places a competitive
ETC can receive support are where the underlying incumbent LEC is
already supported, regardless of the competitors' costs and build-out
plans. But simply changing the identical support rule without
addressing the fundamental problem of the poorly targeted support is a
mistake. It may change the incentives facing competitive carriers
interested in becoming ETCs, but it will not advance Universal Service
goals for the consumers in rural areas.
There are four big questions that need to be answered in order to
develop a robust Universal Service policy: what areas need to be
supported; what services do you want to support; who are you going to
pay to deliver those services; and how much are you willing to pay? The
identical support rule goes to the fourth and final question.
Addressing it in isolation will virtually guarantee that the funds are
not sent to the areas most in need.
Thank you and I look forward to your questions.
Senator Stevens. Thank you, Mr. Lubin.
The last witness is Mr. Everett B. Flannery, Chief Deputy
of Kennebec County.
STATEMENT OF EVERETT B. FLANNERY, JR., CHIEF DEPUTY, SHERIFF'S
OFFICE, KENNEBEC COUNTY, STATE OF MAINE; REPRESENTATIVE, MAINE
SHERIFFS' ASSOCIATION
Mr. Flannery. Thank you, Mr. Vice Chairman.
Mr. Vice Chairman and Members of the Committee, I'm Everett
B. Flannery, Jr., the retired Sheriff for Kennebec County. I've
been a law enforcement officer in the State of Maine for almost
30 years, currently acting as Chief Deputy for Kennebec
County--and that's a story, upon itself, which I can tell you
later.
The Maine Sheriffs' Association has designated me as their
spokesman to provide you with a rural public safety official's
perspective on the importance of continuing, and, if possible,
expanding, Universal Service Fund support for the build-out of
our Nation's wireless network into the many poorly served areas
of Maine.
My message is very simple: although wireless service
appears to be outstanding in the urban and suburban portions of
our Nation, there are many rural areas of the State of Maine
that suffer greatly from the lack of quality wireless service.
In fact, there are many communities that have no wireless
service at all. I understand that this problem is common in
other rural communities in the United States, as well.
All of us who live and work in rural Maine struggle with
the problem of inadequate wireless service. For example, I have
no wireless service at my home in Clinton, Maine. Also, I
understand from members of her staff that the Senator from
Maine serving on this Committee has frequent difficulty staying
in touch with her office and her constituents as she travels
about the State of Maine.
The absence of good wireless service prevents those of us
responsible for public safety in America's rural areas from
doing our job properly. Poor wireless service exposes both
rural law enforcement officers and the public to unreasonable
health and safety risks. Poor mobile service makes it less
likely that citizens will be able to give timely notification
to public officials of an emergency, whether it is a car crash,
an accident in a logging operation, a hunting mishap, an ATV or
snowmobile accident, or any other emergency that needs to be
reported.
The nonavailability of wireless service represents a danger
both for public safety officials and the public alike. For
example, when our dispatch center receives a 9-1-1 domestic
violence call, the deputy assigned will call into dispatch and
be connected directly to the caller. Deputies are trained to
use their cell phones to call ahead to determine what's going
on and whether the deputy should call for assistance or not,
looking for answers like, ``Has someone made a threat? Are
drugs or alcohol involved? Are children present? Does someone
have a weapon?'' Oftentimes, just speaking with a deputy will
calm the situation down. However, poor cell service in Kennebec
County means that the deputy will often be unable to get
through to the residents. As someone who has handled rural
patrol duties, I can assure you that you would really prefer to
know whether someone inside the residence has a gun before you
knocked on the door.
Bad as this--excuse me--as bad as this is, I get even more
concerned when I consider our readiness to manage a disaster
like September 11 or a Hurricane Katrina. Maine's public safety
officials are trained, equipped, and staffed to handle major
incidents, but the absence of quality mobile service to enable
the public to communicate with us, and we with them, leads us
to conclude that we may not be able to deliver the services
that people need and deserve in such situations.
I urge you to review the White Paper included as an exhibit
to my testimony which documents the critical role played by a
USF-supported wireless carrier in the recovery from Hurricane
Katrina. The white paper explains that the FCC funded the
distribution of thousands of mobile phones to Katrina victims.
Why? Because, in the immediate aftermath of the storm, the
Universal Service-supported wireless carrier had the only
operating communications system on the Gulf Coast of
Mississippi. If we, in rural Maine, were to be hit with such a
disaster of this magnitude, I feel that we would have no means
of communication at all.
In Maine, the level of support going to rural wireless
carriers from the Universal Service Fund will determine our
ability to cope with a disastrous situation. Maine's public
safety officials cannot understand why the Federal Government
would consider capping rural wireless expansion funding just as
it is beginning to achieve the results intended by the Congress
in its landmark Telecommunications Act of 1996. Avoiding a cap
on wireless Universal Service funding is a very important issue
for Maine. That is why our entire Congressional delegation has
gone on record opposing the cap in the letters filed with the
FCC. Also, earlier this month, the legislature of the State of
Maine enacted a joint resolution memorializing Congress and the
FCC in opposition to this cap. As this illustrates, achieving
improved wireless service for our State is a thoroughly
bipartisan effort.
In closing, I want to extend my thanks to the Committee and
its staff for providing me with the opportunity to share the
perspective of Maine's rural public safety officials with you
at this hearing. I especially want to thank Senator Snowe and
her excellent staff for their assistance in connection with my
appearance here today.
Thank you.
[The prepared statement of Mr. Flannery follows:]
Prepared Statement of Everett B. Flannery, Jr., Chief Deputy, Sheriff's
Office, Kennebec County, State of Maine; Representative, Maine
Sheriffs' Association
Mr. Chairman and members of the Committee, I am Everett B.
Flannery, Jr., and I am a career law enforcement officer in Kennebec
County, a largely rural portion of the State of Maine. Currently, I
serve as the Chief Deputy Sheriff for the County. I was the elected
Sheriff of Kennebec County from October 5, 2001 to December 31, 2006,
but I stepped down in January of this year in order to shift my focus
from management and administration of the Sheriff's Office to computer
forensics and information technology. My resume is attached as Exhibit
1 to this Testimony.
I am here today both in my own capacity and as a representative of
the Maine Sheriffs' Association (``MSA''). The Maine Sheriffs have
designated me as their spokesman to provide you with a rural public
safety official's perspective on the importance of continuing and, if
possible, expanding, Universal Service Fund (``USF'') support for the
build-out of our Nation's wireless network into the many poorly served,
rural areas of the United States. On Friday of this week, the MSA will
take up a Resolution formally opposing the cap on competitive ETC
funding proposed by the Federal State Joint Board on Universal Service.
A draft of this Resolution is attached as Exhibit 2. I am confident
that it will be adopted, and I ask permission to supplement the record
with the final version of the Resolution, as adopted.
My message is very simple: although wireless service appears to be
outstanding in the urban and suburban portions of our Nation, there are
many rural areas of the State of Maine that suffer greatly from the
lack of quality wireless service. In fact, there are many communities
in Maine that have no wireless service at all. I understand that this
problem is common in other rural communities in the United States.
The ``Wireless Gap'' between urban and rural America was not
supposed to happen. As I understand it, the 1996 Telecom Act set up the
Universal Service Fund to ensure that telecommunications services in
rural and urban areas would be ``reasonably comparable'' in terms of
price and service availability. Adequate support from the USF remains
the key to closing the Wireless Gap in America. Until the Gap has been
closed, those of us living in the rural areas of the United States have
a right to expect, and do expect, that Universal Service Fund will
continue to provide support for rural wireless service.
The absence of good wireless service prevents those of us
responsible for public safety in America's rural areas from doing our
job properly. For reasons I will explain later, poor wireless service
exposes both rural law enforcement officials and the public to
unreasonable health and safety risks and greatly compromises the public
safety community's ability to carry out our homeland security duties in
the event of a natural or man-made disaster. I will also explain why
this condition stifles any hope of much-needed economic development in
rural areas.
Right now, our only hope of correcting this terrible situation
rests on continued and, if possible, expanded support from the
Universal Service Fund for rural wireless expansion. We in rural Maine
cannot understand why the Federal Government would consider capping
rural wireless expansion funding just as it is beginning to achieve the
results intended by the Congress in its landmark Telecommunications Act
of 1996. I would hope that the FCC could be convinced of the importance
of expanded rural wireless funding. If not, then I would hope that
Congress would take action to override the FCC.
This is my third trip to Washington as the MSA's spokesman on this
issue. (On my two prior trips I met with FCC Commissioners and their
staff and with the members of Maine's Congressional delegation and
their staff, in each case to discuss the need for expanding USF support
for rural wireless expansion.) Whenever I am in Washington I begin to
understand why it might be difficult for some policymakers in this city
to appreciate the importance of rural wireless funding to those of us
in Maine. Here in Washington, I notice that my mobile phone shows a
strong signal wherever I go. The signal quality remains excellent as I
travel around the city and I rarely drop a call here. Folks here in
Washington do not experience poor wireless service, and I am tempted to
recommend that the Congress require the FCC to move its offices to
rural Maine, and require the Commissioners to live and try to work
there, so that they can experience what we experience every day. I am
confident that we would enjoy much more reasonable policy treatment
should you decide to take this step.
My point, of course, is that wireless service where I live and work
in Kennebec County, Maine, is not at all comparable to what I find here
in Washington. I have very poor wireless service at my home in Clinton,
in the northern part of the County, and service is generally spotty
unless you are in the Augusta area (Maine's capital) or on one of the
County's major roads. The smaller towns in the County, such as Albion,
Benton, Mount Vernon, Fayette, Rome, and Vassalboro have very poor or
no service.
Now let me explain why this presents a serious public safety
problem. Poor mobile service makes it less likely that citizens will be
able to give timely notification to public safety officials of an
emergency, whether it is a car crash, an accident in a logging
operation, a hunting mishap, ATV/snowmobile accident or any other
emergency that needs to be reported.
Here's a specific example. My son is a paramedic in Somerset
County, another rural area of our State. He is often the first
responder, for example, when a logging truck with a full load overturns
on the highway. His job is to evaluate any injuries on the scene, do
what he can to stabilize the injured party and transport the injured to
the hospital in Skowhegan. In many cases, there is no VHF or cell
service at the accident scene. This means that he has to flag down
passing motorists and ask them to drive to a house with wireline
service and call for assistance. The alternative is to climb a nearby
hill and hope he can catch a signal, leaving the injured in the hands
of a single paramedic. The delay in arranging care and/or
transportation by helicopter can often be life-threatening.
Poor wireless service also prevents public safety personnel from
carrying out their day-to-day responsibilities in an efficient and
effective way. For example, the dispatch center in our office
frequently gets 9-1-1 calls regarding domestic violence, and a deputy
in a cruiser will be sent to the scene. Our deputies will call into
dispatch to be connected directly to the caller. Often a domestic
incident will resolve itself when the parties involved know that law
enforcement will be arriving shortly.
Also, during the call the deputy tries to determine whether anyone
at the scene has a weapon, whether alcohol or drugs are involved, and
whether children are in the house. This enables the deputy to decide
whether to arrange back-up both for his or her own safety and for the
safety of the citizens at the scene. I myself handled rural patrol
responsibilities such as this earlier in my career, and I can tell you
that you would really prefer to know before you knock on a strange door
whether anyone inside the house is armed.
In the many areas of Kennebec County where mobile service is poor,
our deputies either cannot make these calls at all, or the calls are
dropped frequently. So, does the deputy assume the call was dropped or
was the phone ripped out of the wall? The result is a very unsafe
condition both for the citizens we are trying to protect and for the
public safety people who are trained to deliver these vital services.
Because modern digital technology is secure, we often rely on cell
phones in our surveillance and undercover work. These very valuable
tools are useless in rural towns where service is unreliable.
These are just three examples of the kinds of problems public
safety people in Maine face every day in our struggle with inferior
wireless service. Bad as this is, I get even more concerned when I
consider our readiness to manage a disaster on the scale of a September
11 or a Hurricane Katrina. We are trained, equipped and staffed to
handle major incidents like these, but the absence of quality mobile
service to enable the public to communicate with us (and we with them),
leads me to conclude that we may not be able to deliver the services
that people need in such situations.
In training scenarios involving natural or man-made disasters we
will deploy our mobile command post to the area. Often times we must
place the command post not at the best location for the incident, but
to obtain a wireless signal to have access to the Internet and needed
information, i.e., weather and wind conditions, posting emergency
public alerts, etc.
Last year, I participated in the preparation of a White Paper
covering the homeland security aspects of Universal Service Fund
support for rural wireless expansion. The White Paper, which is
attached as Exhibit 3 to this testimony, focused on the impact of
Universal Service Fund support for a wireless service provider serving
the Gulf Coast of Mississippi. The White Paper found that although
Hurricane Katrina knocked out much of the wireline network in this area
for several weeks, the wireless network, supported by steady infusions
from the Universal Service Find, proved remarkably resilient. Indeed,
the FCC, which today seems poised to limit funding for wireless
carriers, exercised its emergency authority over the USF to fund the
distribution of hundreds of thousands of free mobile phones to storm
victims, since no other means of communication was available in the
area.
The White Paper also found that public safety personnel relied on
the wireless network almost exclusively in the aftermath of the storm
and for some time thereafter. For example, here is a quote from a
dispatcher in the Gulf Coast area:
I work as a dispatcher for the Ocean Springs Police Department.
During the storm my Cellular South [mobile] phone was the only
phone I could count on to be working at all times. I never lost
a signal and was able to use the phone as needed. Also, the
police officers were able to use the phone to check on family
and loved ones.
As this shows, USF support for rural wireless build-out will not
only help public safety officials in our day-to-day task, but will
permit us to deliver critical services in disaster situations.
At a time when we are considering whether to implement an Emergency
Alert System that will enable us to text message citizens with disaster
reports or warnings of imminent weather or other emergencies, it should
be obvious that these tools will be useless in areas where there is
poor cell service. Likewise, for all of the investment that is going
into 9-1-1 and E-911 technologies, both at the carrier level and on the
public safety side, the lack of service availability will make these
technologies useless in many rural areas.
Although my field is public safety, I am also very aware that poor
mobile service hamstrings rural areas in our efforts to attract new
businesses vitally needed to counteract the departure of our
traditional manufacturing industries. I discussed this frequently with
Sheriffs in other parts of Maine and the story is the same all over: no
business wants to locate to an area with poor mobile service. The
Sheriff of Oxford County in Maine told me a story that makes this point
better than anything I could say. He told me that an economic
development official in his County was taking a businessman to a
location to try to interest him in relocating his business. On the way
there, the prospect took out his cell phone, noticed that he had no
service, and asked to be taken right back to the airport.
Aside from the significant public safety and business development
concerns posed by poor mobile service, I would hope that the Committee
would consider the countless daily frustrations that this condition
inflicts on the people of rural America. To try to make this point, I
would refer you to Exhibit 5 of United States Cellular's Comments filed
on the issue of the cap with the FCC. (A copy of these Comments were
submitted to the Committee with Mr. Rooney's testimony.) This Exhibit
consists of the testimony of thirty-six people from three small Maine
towns: Bingham, Fort Fairfield, and Jonesport. This testimony was
submitted in 2004 by United States Cellular Corporation to the Maine
Public Utilities Commission in support of its Eligible
Telecommunications Carrier application. Here you will find the stories
of common, every day rural people struggling to cope with poor mobile
service:
the mussel farmer who cannot contact his customers while
harvesting,
the business consultant who cannot make calls as he travels
around the State,
the shop owner who has to share his store's phone five times
a day with passing travelers,
the ambulance service operator who has trouble communicating
with his drivers,
the operator of a hydro-electric plant who cannot
communicate with crew members working in dangerous areas away
from the office,
the wood fuel purchaser who cannot communicate with his
power plant customers or with his truck drivers,
the potato farmer who cannot communicate with his wife from
his tractor,
the operator of a horse feed operation who cannot
communicate with her employees in satellite facilities,
the hardware store owner who cannot call his store or his
customers from the road,
the contractor who cannot call his workers, his customers,
his suppliers, or the local building inspector from the job
site,
the husband who worries when his wife, who works the night
shift 20 miles away, has to drive home in the pitch dark of a
January night in an ice storm over roads where cell service is
unavailable,
the fisherman who cannot order a part or call his wife from
his boat,
the fisherman's wife who would like to be able to call her
husband when his boat is overdue, or to tell him that the new
grandchild has arrived.
I also understand from members of her staff that a Maine Senator
serving on this Committee frequently has difficulty in staying in touch
with her office and her constituents as she travels around Maine.
I am very pleased to say that the Maine PUC granted ETC status to
United States Cellular, that U.S. Cellular has begun receiving proceeds
from the USF, and that with those proceeds, it has expanded its mobile
network into Bingham, Fort Fairfield and Jonesport, Maine, improving
the lives and livelihood of citizens in these areas. The Maine PUC has
certified to the FCC (most recently in October of last year) that U.S.
Cellular and Unicel, the only other wireless ETC in Maine, are
complying with all USF requirements. This shows that USF support for
rural wireless can really work just as Congress intended.
But in fact the work is just beginning. We still have many areas in
our State that the wireless infrastructure does not reach, and thus
continued and expanded USF support is imperative if we are to create a
safe and modern environment to attract business and keep our young
people in the State of Maine.
Avoiding a cap on wireless USF funding is a very important issue
for Maine. Illustrating this is the fact that our entire Congressional
delegation has gone on record opposing the cap in letters filed with
the FCC. (These letters are attached as Exhibit 4.) Governor Baldacci
has likewise written to Senator Snowe urging her to continue her much
appreciated efforts in this regard. Also, earlier this month the
Legislature of the State of Maine enacted a Joint Resolution
memorializing Congress and the FCC in opposition to the cap. I have
attached this Resolution as Exhibit 5 of my testimony, and I have an
original of the Resolution here to present to Senator Snowe at the
conclusion of this hearing.
As this illustrates, achieving improved wireless service for our
State is a thoroughly bipartisan effort.
In closing, I want to extend my thanks to the Committee and its
staff for providing me with the opportunity to share the perspective of
Maine's rural public safety officials with you at this hearing. I
especially want to thank Senator Snowe and her excellent staff for
their assistance in connection with my appearance today.
Exhibit 1
Resume of Everett B. Flannery, Jr.
(This is retained in the Committee's files.)
Exhibit 2
Maine Sheriffs' Association
Resolution in Opposition to Proposed Limitation on Federal Universal
Service Funding for Rural Wireless Expansion
WHEREAS, the Maine Sheriffs' Association finds that in at least a
portion of each County of the State of Maine, and in significant
portions of the rural areas of the State of Maine, wireless service is
either non-existent or unreliable, and
WHEREAS, due to the large size and largely rural character of the
State of Maine, this lack of reliable cellular service puts the health
and safety of Maine citizens at great risk, and
WHEREAS, the Telecommunications Act of 1996 provides that
telecommunications services in rural areas of the United States shall
be reasonably comparable in price, availability, consumer choice and
quality of service to that available in the non-rural portions of the
United States, and for that purpose established the Federal Universal
Service Fund (``USF''), and
WHEREAS, the lack of adequate wireless service in Maine's rural
areas indicates that the promise of ``reasonable comparable service''
included in the Telecommunications Act of 1996 has not been met, at
least in much of rural Maine, and
WHEREAS, according to the Public Utilities Commission:
(a) wireless subscribership has in Maine grown from 368,000 to
630,000 between 2001 and 2006, and
(b) in 2006, approximately fifty percent (50 percent) all E-911
calls were placed by wireless subscribers.
Based on this, the Maine Sheriffs' Association concludes that
Maine's inadequately served rural areas are falling farther and farther
behind the non-rural areas of the state both in services and in the
basic capacity to meet public safety requirements, and
WHEREAS, the continued expansion of cellular service throughout
rural Maine is therefore of vital importance to the ability of the
sixteen sheriff's departments of Maine to adequately protect the health
and safety of the citizens we serve, and
WHEREAS, on May 1, 2007, the Federal-State Joint Board on Universal
Service issued a Recommended Decision recommending that the Federal
Communications Commission (``FCC'') impose a cap on USF support for
competitive carriers, almost all of whom are wireless carriers, and
WHEREAS, the proposed cap would limit USF funding for wireless
expansion in Maine by an estimated amount of $2 million per year in
2007 and more in succeeding years, and
WHEREAS, in the opinion of the members of the Maine Sheriffs
Association the Joint Board's proposed cap would be harmful to the
health, safety and welfare of Maine's citizens,
NOW, THEREFORE, the MAINE SHERIFFS' ASSOCIATION hereby unanimously
adopts the following resolution:
(A) That the Maine Sheriffs' Association hereby finds that the
continued expansion of cellular service is in the best interest of the
health and safety of Maine citizens. The current lack of dependable
cellular service in rural Maine often
(1) Prevents Maine law enforcement officers from carrying out
their Homeland Security responsibilities and other large-scale
operations;
(2) Prevents Maine law enforcement officers from calling for
back-up assistance when confronting a violent offender,
(3) Prevents Maine law enforcement officers from contacting
complainants prior to arriving at a scene to determine the
seriousness of the situation and the need for back-up or other
emergency services,
(4) Prevents Maine law enforcement officers and other ``first
responders'' from contacting either physicians or LifeFlight of
Maine when dealing with a life-threatening injury requiring
immediate attention, and
(5) In general, hampers the efficient and safe discharge of the
duties of law enforcement officers in rural Maine; and
(B) That the Maine Sheriffs' Association hereby unanimously opposes
the May 1 Recommended Decision of the Federal-State Joint Board and
instead urges the FCC to reject the proposed cap on funding for rural
wireless expansion so as to redeem the promise of the
Telecommunications Act of 1996 to provide telecommunications services
in rural areas of the United States that are reasonably comparable in
price, availability, consumer choice and quality of service to that
available in the non-rural portions of the United States; and
(C) That the Maine Sheriffs Association directs its officers to
take such action as they may deem appropriate to bring this Resolution
to the attention of the Maine Congressional delegation and the FCC, and
to undertake such other actions as they deem appropriate to effectuate
the purposes of this Resolution.
IN WITNESS WHEREOF, I hereby certify that the above Resolution has
been unanimously adopted by the Maine Sheriffs' Association.
Sheriff James P. Madore,
President,
Aroostook County
Exhibit 3
White Paper
Federal Universal Service Fund Support for Rural Cellular Carriers: A
Homeland Security Perspective Based on the Experience Gained
from Hurricane Katrina
October 2006
This White Paper will review the homeland security implications of
continued Federal Universal Service Fund (``USF'') support for wireless
carriers serving the rural portions of the United States. The Paper
discusses the remarkable performance of the rural wireless
infrastructure in the areas affected by Hurricane Katrina and the vital
role played by rural wireless carriers in meeting the short- and long-
term communications needs posed by that disaster. The paper also
reviews the FCC's use of its emergency powers to make USF funds
available to provide wireless handsets to hundreds of thousands of low-
income storm victims. The Paper concludes, based on this experience,
that USF funding for rural wireless carriers serves an important
homeland security function, and urges policymakers in the homeland
security area to strive to ensure continued USF support for rural
wireless carriers. A Congressional affirmation that qualifying rural
wireless carriers will have predictable, ongoing, and guaranteed access
to USF support until they can complete the build-out of America's rural
areas will allow Federal, state and local public safety officials to
design their disaster response plans on that basis. This will help them
to achieve the elusive goal of developing interoperable communications
systems for use in disaster situations.
I. Universal Service Support for Rural Wireless Carriers
The Telecommunications Act of 1996 (the ``Tel Act'') reaffirmed the
``Universal Service'' policy of the United States, which, at that time,
had been a hallmark of American telecommunications policy for over
sixty years. To accomplish the Tel Act's goal of ensuring that the
rural portions of the United States have a level of telecommunications
service comparable in quality and price to that found in the urban
portions of the country, 47 U.S.C. 254(b), Congress included
provisions in the Tel Act establishing the Universal Service Fund.
America's rural wireline carriers promptly secured Eligible
Telecommunications Carrier (``ETC'') status under the Tel Act, allowing
them to obtain USF funding. Since the passage of the Tel Act, rural
wireline carriers have received almost $20,000,000,000 in USF support
payments. As almost all of these carriers have fully built-out land-
line systems, the wireline carriers have used USF support payments
primarily to improve the affordability of rural wireline service.\1\
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\1\ In other words, the wireline carriers and their state
regulators treat wireline USF funds as an operating subsidy, resulting
in rates for local exchange service that are lower than they would be
without the USF subsidy.
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Over the past 5 years, many rural wireless carriers have obtained
ETC status, most in contested case proceedings at state public utility
commissions, with local wireline carriers actively participating.
Wireless ETCs have been certified in all but one rural state. Unlike
their wireline counterparts, most rural wireless carriers have immature
networks that require substantial additional capital expenditures to
develop fully built-out systems. Consequently, Wireless ETCs use most
of their USF funding to expand service in the rural areas that they
serve. These carriers typically file build-out plans with state public
utility commissions, which must re-certify the carriers annually in
order to maintain their ETC status and, hence, their USF funding.
Although wireline carriers have taken in almost $20 billion in USF
support payments since the passage of the Tel Act in 1996, Wireless
ETCs over the same time period have taken in just over $1 billion in
the aggregate.\2\ The severe under-funding of Wireless ETCs serving
rural America (as compared to their wireline counterparts) has
undermined the Tel Act's objective, as embodied in Section 254, of
having service in rural areas that is ``comparable'' in quality and
price to that found in urban America. Thus, although urban and suburban
America enjoy virtually ubiquitous wireless service, today, 10 years
after the enactment of the Tel Act, many portions of rural America
suffer from poor or non-existent wireless service. For example, a
report on rural Washington County, Maine, commissioned by Maine
Governor John E. Baldacci found that
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\2\ As of December 21, 2005.
For any business engaged in interstate and/or international
commerce, a comprehensive network of broadband and wireless
interconnection is as necessary as the telephone--as the
computer and cell phones have become indispensable to business.
Such infrastructure, however, has established only a tentative
toehold in Washington County.\3\
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\3\ Report on an Economic Development Strategy for Washington
County, Prepared by David Flanagan, Governor Baldacci's Special
Representative to Washington County, November 17, 2005, at p. 52.
(http://www.maine.gov/Governor/baldacci/issues/washington_county/WC
Report.doc).
Although USF support has enabled Wireless ETCs to expand their
service into many rural communities, the above-quoted Washington County
Report, issued in the fall of 2005 (nine years after the Tel Act became
effective) describes conditions that are typical in many portions of
rural America. For these communities, continued USF support for
Wireless ETCs is the only realistic hope for building the wireless
infrastructure needed to allow them to remain economically viable in
the 21st century.
Lack of adequate wireless service also creates adverse public
safety conditions in rural America even in non-disaster situations: to
cite just a few examples, emergency medical technicians cannot place
wireless calls to arrange for medical care and transportation for
injured motorists, deputy sheriffs responding to a domestic violence
report cannot call ahead to determine whether someone in the house has
a gun, and ordinary citizens enduring a landline phone outage during a
flood or blizzard are completely cutoff from any assistance. Obviously,
should a terrorist incident or a natural disaster, such as a hurricane,
occur in an under-served rural area, the public safety implications of
inadequate wireless service would be catastrophic.
The service provided by wireless carriers in the wake of Hurricane
Katrina, discussed below, demonstrates the positive impact, from a
public safety standpoint, of adequate wireless service in coping with
the disruption caused by a disaster.
II. The Role of Wireless Carriers in Hurricane Katrina
Despite the widespread devastation caused by Hurricane Katrina, the
wireless infrastructure in the Gulf Coast demonstrated a remarkable
resiliency. An independent panel convened by the Federal Communications
Commission (``FCC'') reported that although more than 1,000 wireless
base stations were affected by Katrina, only about 1 percent (1%) of
the cell towers in the area affected by all of the storms that wracked
the Southeastern and Gulf Coast in 2005 (including both Katrina and
Rita) suffered any significant damage.\4\ In general, the cell sites
that ceased to function as a result of Katrina lost service either due
to a power outage or to the loss of connectivity to the landline
telephone network. Within a week after Katrina hit, approximately 80
percent of the cell sites within the affected area were operating.\5\
Wireless carriers restored service to many areas on a temporary basis
using over 500 mobile cellular base stations.\6\
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\4\ Report and Recommendations to the Federal Communications
Commission, Independent Panel Reviewing the Impact of Hurricane Katrina
on Communications Networks, June 12, 2006 (``FCC Katrina Panel
Report''). The Report and additional information regarding this panel's
work can be found at: http://www.fcc.gov/eb/hkip/.
\5\ FCC Katrina Panel Report at 9.
\6\ These consisted of about 100 ``cellular on wheels'' (or
``COWs'') facilities and 427 ``cellular on light trucks'' (or
``COLTs'') installations. Statement of Peter Fonash, Deputy Manager,
National Communications System, to Senate Homeland Security and
Government Operations Committee, February 6, 2006, available at http://
kyl.senate.gov/legis_center/subdocs/030805_fonash.pdf.
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On the landline side of the equation, Katrina and the floods it
caused knocked out service to over 3,000,000 landline customers.
Although Bell South and the other affected landline companies restored
service to about 90 percent of these lines within 10 days after
Katrina's landfall, the hardest-hit areas suffered prolonged outages
(weeks or months without service) due to flooded switches, multiple
fiber breaks and chronic power outages. In these areas, wireless
service was virtually the only means of communications available to
public safety personnel and the general public. (See Section III
below.)
Many first responders and other public safety workers involved in
Katrina-related operations took advantage of Wireless Priority Service
(``WPS''), which was developed following 9/11 to address wireless
network congestion problems encountered in emergency situations. In the
World Trade Center incident, as in Katrina, many people in the affected
area found themselves displaced from their homes and places of work.
They and their loved ones flooded the wireless network trying to
contact each other, often causing delays in completing wireless calls.
Consequently, public safety personnel encountered substantial
difficulties in completing emergency calls on the wireless network
during these congested periods.
The WPS program is administered by the National Communications
System (``NCS'') a Federal agency with various communications-related
public safety responsibilities. Dr. Peter Fonash, an NCS official,
explained in his statement to the Senate Committee on Homeland Security
and Government Operations that, ``The need [for a priority program] was
recognized after 9/11 because many Federal and State and local
Government and industry leaders utilize wireless as a primary means of
mobile communications.'' \7\ In the WPS program, public safety and
other critical personnel can enter a pre-assigned WPS number when
making wireless emergency calls during congested periods and get
priority service: they are ``moved to the head of the line,'' and are
assigned the next channel opening up on the wireless system. The NCS
provided WPS service to over 4,000 emergency workers during Hurricanes
Katrina and Rita.\8\
---------------------------------------------------------------------------
\7\ Fonash Statement at 4.
\8\ Id. at 5.
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III. The FCC's Use of Universal Service Funding To Provide Wireless
Service to Low-Income Storm Victims
Hurricane Katrina displaced thousands of Gulf Coast families. As a
result, the restoration of landline phone service in a given area made
little or no difference in the lives of the families whose homes in
that area had been destroyed and who were living in a series of
temporary quarters. As the FCC observed in an Order issued 6 weeks
after the storm, ``Thousands of people--many evacuated to neighboring
states--remain without telecommunications service, unable to contact
loved ones, make new living arrangements, or find post-hurricane
employment.'' \9\
---------------------------------------------------------------------------
\9\ FCC Hurricane Katrina Order, October 14, 2005 (``FCC Hurricane
Katrina Order''), at 2. The FCC noted that ``Unless addressed, this
lack of access to telecommunications will lengthen the already-long
period of time anticipated for recovery from the damage caused by
Hurricane Katrina.'' Id. at 4.
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Recognizing that many of the storm's victims were low-income
families, the FCC exercised its emergency powers to make $39 million
available from the Universal Service Fund to reimburse wireless
carriers willing to provide a free wireless handset and 300 free
minutes to low-income storm victims. The FCC estimated that about
300,000 households would be eligible for this benefit.\10\ The FCC's
Order underscores both the role played by the Universal Service Fund in
making wireless service available to low income consumers and their
extraordinary need for wireless service:
---------------------------------------------------------------------------
\10\ ``We estimate that this will have approximately a $39 million
impact on the low-income fund, based on an estimated $130 per
approximately 300,000 eligible evacuee households without telephone
service.'' FCC Hurricane Katrina Order at n. 23.
We note that this relief, combined with the action we took
earlier with regard to waiver of the geographic porting
requirements, would allow evacuees to maintain their home phone
numbers, and promote continuity with regard to personal
contacts, employment, education, and housing. Under the unique
and devastating circumstances caused by the hurricane and its
aftermath, we conclude that provision of this support,
including a free wireless handset, is consistent with the
purpose of section 254 [of the Tel Act] because it is
reasonably necessary to ensure that low income consumers have
immediate access to telecommunications services. We further
find that this support fulfills the Commission's broader
mandate to make wire and radio communication service available
to all people of the United States, and to promote the safety
of life and property.\11\
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\11\ Id. at 8.
Under the terms of the FCC's Hurricane Katrina Order, the temporary
relief afforded under that Order originally expired on March 1, 2006.
In advance of that date, the Louisiana Public Service Commission and T-
Mobile successfully petitioned the FCC for an extension of the program.
T-Mobile's Petition noted that it had distributed over 25,000 handsets
under the program. (By the time T-Mobile filed its Comments with the
FCC's Hurricane Katrina Panel in May of 2006, the number of handsets
distributed by T-Mobile alone exceeded 44,000.) The FCC's March 1, 2006
Order extending the term for USF funding of wireless service for low-
---------------------------------------------------------------------------
income Katrina victims (``FCC Extension Order'') observed that:
The purpose of the original relief was to provide some
stability and continuity of access to telecommunications for
Hurricane Katrina victims while they were away from their
destroyed homes and transitioning to a more permanent living
situation. Because many of the hurricane victims remain
displaced, we find that it is in the public interest to extend
the provision of the Federal Lifeline Katrina relief until June
1, 2006.\12\
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\12\ FCC Extension Order at 5.
The FCC's October 2005 Hurricane Katrina Order and its March 1,
2006 Extension Order exemplify the compelling need for continued USF
funding to support wireless service under disaster conditions. In the
case of Katrina, USF-funded wireless service proved invaluable not only
in meeting the public-safety-related communications needs of first
responders and personnel involved in storm clean-up activities, but
also to afford some means of communications for the hundreds of
thousands of average Americans displaced by the catastrophe. For these
people, a USF-funded wireless handset was the sole means of
communications with other family members, employers and government
relief agencies. Continuing and prudent investment of high-cost support
funds for wireless infrastructure in rural areas will improve the
availability of these important health and safety benefits.
IV. Cellular South: Portrait of a Wireless ETC's Role in Katrina and
its Aftermath
Located in Jackson, Mississippi, Cellular South provides wireless
service to 5.8 million customers in both rural and urban portions of
the State of Mississippi. It also provides service in four other states
in the southeastern United States. The State of Mississippi certified
Cellular South as an ETC in 2001, and the company began receiving USF
support shortly thereafter.
The USF support has allowed Cellular South to convert much of its
network to modern CDMA technology, increase substantially the capacity
of its system, and expand its service through the construction of
numerous new cellular sites in many rural communities that would
otherwise not have high-quality mobile service. In 2006 alone, Cellular
South plans to add approximately 225 new cell sites at a cost of $126
million, a significant portion of which will be funded through USF
support.\13\
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\13\ Article: Cellular South: An Honest Approach & No Excuses,
Wireless Week, April 1, 2006 (Wireless Week Article) at 3.
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As an ETC, Cellular South has provided Federal Lifeline and Link-Up
benefits to low income customers. Consequently, eligible low-income
rural customers living within Cell South's ETC territory have a choice
of providers, and can obtain Cellular South wireless service for as
little as $7.00 per month.\14\
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\14\ Testimony of Carson Hughes (CEO of Cellular South's parent
company) before the Subcommittee on Communications, Committee on
Commerce, Science, and Transportation, U.S. Senate, at 2-3, April 2,
2003.
---------------------------------------------------------------------------
Thanks to careful planning and the extraordinary dedication of its
workforce, sixty percent (60%) of Cellular South's Gulf Coast network
was operational 1 day after Katrina hit, and full service was restored
to the entire network within 2 weeks after landfall. In many of the
hardest hit areas, Cellular South had the only operational
communications network in the weeks following the storm's coming
ashore. Remarkably, Cellular South did not lose a single tower on the
Mississippi coast, and never lost wireless service at any time in some
of the hardest-hit areas such as Hattiesburg, Biloxi and Bay St.
Louis.\15\ On the day after the storm hit, Cellular South handled a
record 1,000,000 calls, and over the next few weeks its daily volume
surged to 2,600,000 calls per day.
---------------------------------------------------------------------------
\15\ Wireless Week Article at 3.
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In the first week after the storm, Cellular South assisted over
7,000 storm victims and evacuees at various phone banks it established,
and offered free cellular calling and free handset charging to all
wireless customers regardless of the customer's carrier. More than 90
percent of the company's retail locations were open after the storm,
with storefronts in Biloxi, Bay St. Louis and Hattiesburg operating out
of tents.\16\ Realizing that it had the only operational communications
network available on the Gulf Coast, the company distributed over 500
handsets at no charge to public safety personnel in the Gulf Coast
region.\17\
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\16\ Blog: Eyes on Katrina, a South Mississippi Hurricane Journal,
September 8, 2005.
\17\ Cellular South website: ``Storm Stories'' http://
www.cellularsouth.com/hurricane/storm
Stories.jsp.
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Cellular South's ability to maintain the continuity of its service
despite the storm's wholesale destruction enabled public safety
officials to carry out their disaster relief responsibilities in a
remarkably efficient manner, given the wholesale disruption of the
region's landline telecommunications infrastructure. George Scholl, the
Director of the Jackson County (Mississippi) Emergency District,
explained:
Throughout the worst of the storm, I used my Cellular South
phone to stay in touch with Bell South to coordinate 9-1-1
coverage and with Motorola officials to coordinate repair of
our primary 800 MHz radio system. After the storm, even with
the 800 MHz system restored to full capability for operational
use by first responders, there was a continuing need by county
and city command structures for an ``administrative'' system to
either replace destroyed landline phones or to enable workers
to move immediately into alternate facilities that had no
communications capabilities. Cellular South was vital in
helping to fulfill this need and continues to do so.\18\
---------------------------------------------------------------------------
\18\ Id.
Likewise, Jim Catchot, the E-911 Dispatcher for the Ocean Springs,
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Mississippi, Police Department stated:
I work as a dispatcher for the Ocean Springs Police Department.
During the storm my Cellular South phone was the only phone I
could count on to be working at all times. I never lost a
signal and was able to use the phone as needed. Also, the
police officers were able to use the phone to check on family
and loved ones.
Mr. Catchot's remark regarding the average citizen's need for
Cellular South's highly resilient wireless service for communicating
with loved ones was echoed over and over again throughout the
beleaguered Gulf Coast. For example, a Biloxi woman who was evacuated
to Hattiesburg wrote to Cellular South thanking the company for its
outstanding service and provided the following typical story:
I never lost cell phone service through the entire storm and
after. I was able to stay in contact with my father on the
coast on his Cellular South cell phone--although he did lose
his ability to call out I could still call him. After the storm
while walking down the streets of what was left of my town I
came across crying people standing on what used to be their
homes. So many people were able to use my cell phone to call
their families in other states to let them know they were okay.
I came across a 79 year old woman crying on the side walk. I
offered to let her use my phone to call her family. She was
amazed that my phone worked, she lost her house and was able to
call her family in LA to come and get her. She hugged me and
cried and thanked me. Of all the cell phone services I am so
happy to have Cellular South. Without my working cell phone I
would have not known if my family or friends were okay. Thank
you.\19\
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\19\ Id.
Recognizing the extraordinary performance of Cellular South, its
management and its employees, in providing outstanding wireless service
through the Katrina disaster, the Mississippi Legislature enacted a
---------------------------------------------------------------------------
Resolution commending:
the executives and employees of Cellular South for their
exemplary service, conduct and performance rendered prior to
and subsequent to Hurricane Katrina's unprecedented destruction
on and near the Mississippi Gulf Coast in August and September
2005, and we offer our thanks to these individuals for their
assistance in providing communications during this critical
time, as we endeavor to rebuild our state and restore its
economy.\20\
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\20\ The full text of the Resolution is attached to this White
Paper.
Based on the lessons learned from Katrina, Cellular South plans to
invest an additional $8 million to enhance the resiliency of its
network even further through the installation of measures such as
microwave links that will allow it to bypass the landline network to
complete calls in the event of another disaster and a mobile command
center.\21\
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\21\ Article ``Cell Companies Beefing Up In Preparation For
Hurricane Season,'' San Diego Union-Tribune, June 1, 2006.
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In its Comments filed with the FCC's Katrina Panel, Cellular South
emphasized that its status as an ETC, and its receipt of USF support,
was a critical factor in its ability to provide vital wireless service
during and after Katrina.
Cellular South has used USF to deploy and operate Cellular
South's CDMA network in rural, high-cost areas of Mississippi
and Alabama, including many of the areas affected by Hurricane
Katrina. Without USF, Cellular South's response to Hurricane
Katrina and the access and capacity that Cellular South
provided to first responders and CDMA users would have been
significantly reduced.\22\
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\22\ Comments of Cellular South, Inc. and Cellular South Licenses,
Inc. to FCC Katrina Panel, May 11, 2006, http://www.fcc.gov/eb/hkip/
PubCom/ACT3066.pdf.
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V. Conclusion: Homeland Security Considerations Alone Warrant
Continuation of USF Support for Rural Wireless Carriers
This White Paper has demonstrated that:
(a) wireless carriers provided a critical communications
service during and after Hurricane Katrina. Specifically,
Cellular South, a rural wireless carrier ETC, had the only
operational communications network in many portions of the Gulf
Coast in the period during and after landfall;
(b) first responders and other public safety personnel rely
extensively (and in many cases solely) on wireless service,
including the service provided by Wireless ETCs, to meet their
emergency and administrative communications needs in the wake
of Katrina;
(c) the widespread availability of wireless service in the
areas hit by Katrina effectively mitigated the
``interoperability problem'' that plagued public safety
personnel in the World Trade Center and other disasters, since
wireless service was virtually the only telecommunications
service available in many areas;
(d) the FCC's Wireless Priority System, implemented after the
World Trade Center disaster, further enhanced the effectiveness
of wireless service as the primary communications mode for
public safety personnel working in the Gulf Coast area;
(e) Federal high-cost USF support for Cellular South and other
ETCs serving the areas affected by Katrina enabled the
supported carriers to install a broad and resilient network in
many rural areas that would not otherwise have the benefits of
mobile service;
and
(f) Supplemental low-income USF support provided by the FCC for
wireless ETCs was critical in making free handsets and 300
minutes of wireless network time available to hundreds of
thousands of low-income Katrina victims.
These facts alone should be sufficient to compel the conclusion
that continued Federal USF funding for rural wireless ETCs should be an
urgent homeland security priority.
The FCC's actions in making millions of USF dollars available to
wireless carriers to furnish Katrina victims with the means to purchase
and use wireless telephones also underscores the fact that in disaster
situations, commercial mobile wireless service is the best reasonably
available means of communications for the general public. The FCC
recognized that people displaced from their homes and businesses and
moving from place to place must have good mobile service to provide the
continuity of communications needed to function in today's world.
The Gulf Coast region was fortunate in that it enjoyed a fairly
robust wireless network--thanks, in significant part, to the USF
funding previously provided to rural Wireless ETCs such as Cellular
South. Should a powerful and disruptive storm, or a terrorist incident,
strike an area of the United States that suffers from limited or no
mobile service, the absence of adequate wireless communications would
leave public safety personnel, such as first responders, and the
general public in a communications vacuum. A Katrina-level storm
hitting Washington County, Maine, for example, where mobile service
``has established only a tentative toehold,'' \23\ would be
devastating.
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\23\ See Section 1 above at n. 1.
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Continued USF funding of rural wireless carriers will ensure that
over time, the Universal Service promise of the Tel Act will be
achieved: rural areas will have a mobile communications system
comparable to that enjoyed in non-rural areas. This, in turn, will
ensure that the people living in rural areas will likewise have a
communications system adequate to see them through the kind of man-made
and natural disasters that have struck the more settled areas of the
United States. With roughly $7 billion of Federal USF being distributed
annually, Federal policies that accelerate wireless infrastructure
development in rural areas must be pursued.
On the other hand, discontinuing this funding will consign
communications in rural America to permanent second-class status, with
obvious implications for rural America's economic vitality as well as
its ability to survive significant natural or man-made disasters.
Public safety in America's rural areas, both in disaster and non-
disaster situations, requires Congressional action, in the homeland
security context, reaffirming that USF support for rural Wireless ETCs
will continue at least until the build-out of America's wireless
network has reached all of the rural portions of the United States.
______
Mississippi Legislature
2006 Regular Session
By: Senator(s) Hewes, Browning, Butler, Carmichael, Chaney, Clarke,
Dearing, Frazier, Gollott, Harden, Hyde-Smith, Jackson (11th), Jackson
(15th), Jackson (32nd), Jordan, King, Mettetal, Pickering, Posey, Ross,
Simmons, Thames, Thomas, Walls, White
Senate Concurrent Resolution 538
(As Adopted by Senate and House)
A Concurrent Resolution Commending Cellular South Network for
Performing Exemplary Service on the Mississippi Gulf Coast
During the Hurricane Katrina Crisis.
WHEREAS, founded in 1988, Cellular South is the Nation's largest
privately held wireless company and the only wireless company
headquartered in Mississippi; and
WHEREAS, Cellular South announced that its wireless network in
South Mississippi, including the Mississippi Gulf Coast, was fully
operational as of Friday, September 9, 2005, 3 days earlier than
previously estimated. Despite Hurricane Katrina's destruction, the
Mississippi-based company never lost service in parts of the most
storm-ravaged areas, particularly in Hattiesburg and Biloxi and had
teams in place that began immediate repairs of cell sites and
infrastructure following the storm; and
WHEREAS, on Monday, August 29, 2005, Hurricane Katrina, a Category
Four Hurricane, crashed with unrelenting and violent force onto the
entire Mississippi Gulf Coast, making landfall at or around Waveland,
Mississippi. In 1 day, the worst natural disaster in our history struck
us a grievous blow, leaving a 90-mile swath of destruction along the
coast and causing severe damage throughout central and north
Mississippi; and
WHEREAS, the reliability of the Cellular South network after the
storm is reflected in the fact that the company has seen a 256 percent
increase in the number of minutes carried on behalf of other carriers'
customers since the storm in the affected area. The increase equates to
more than 8.5 million minutes of usage (MOUs) from other carriers'
customers, following the storm; and
WHEREAS, ``Cellular South employees, some of whom were dealing with
their own personal losses, knew that communication was critical for
hurricane victims and evacuees and they did everything they could to
fully restore our customers' ability to reach loved ones or call for
emergency help in the aftermath of the storm,'' said Hu Meena, company
President. ``As just one example, The Washington Post noted in one of
its stories a Cellular South network technician in Biloxi who literally
crawled out of his home that had been destroyed by a fallen tree, got
his family to safety and then traveled to the nearest cell site to
begin repair work;'' and
WHEREAS, Cellular South utilized 300 generators and 20,000 gallons
of fuel, as well as over 400 employees dedicated to restoring the
network as quickly as possible. Through the dedication and hard work of
the team, the network was restored ahead of schedule, and reported
record minutes of use upon restoration of service. Cellular South
donated over 1,000 phones to local, state and Federal officials who
worked and are still working to rebuild Mississippi, as well as to many
Red Cross Shelters so that hurricane victims would have a way to
communicate with their loved ones. Cellular South donated a total of 50
million free relief minutes to customers in the hardest hit of areas;
and
WHEREAS, while it is still early to complete a full assessment,
estimates indicate the financial impact of Hurricane Katrina on
Cellular South are likely to be in the range of $8 to $12 million; and
yet, the company's goal was to do whatever it took to restore service
for customers and take care of employees--both those affected by
Hurricane Katrina and those working to restore wireless service:
NOW, THEREFORE, BE IT RESOLVED BY THE SENATE OF THE STATE OF
MISSISSIPPI, THE HOUSE OF REPRESENTATIVES CONCURRING THEREIN, That we
do hereby commend the executives and employees of Cellular South for
their exemplary service, conduct and performance rendered prior to and
subsequent to Hurricane Katrina's unprecedented destruction on and near
the Mississippi Gulf Coast in August and September, 2005, and we offer
our thanks to these individuals for their assistance in providing
communications during this critical time, as we endeavor to rebuild our
state and restore its economy.
BE IT FURTHER RESOLVED, That this resolution be forwarded to Mr. Hu
Meena, President of Cellular South, and be made available to the
Capitol Press Corps.
Exhibit 4
Letters from Maine Public Officials in Opposition to Proposed Cap
June 6, 2007
Hon. Kevin J. Martin,
Federal Communications Commission,
Washington, DC.
Dear Chairman Martin:
I am writing to express my concern regarding the recent
recommendation by the Federal-State Joint Board on Universal Service
that the Commission impose a temporary cap on the amount of support
that competitive eligible telecommunications carriers (ETCs) may
receive through the Universal Service Fund (USF).
While I understand the Joint Board's concern that the rapid growth
in high-cost support is unsustainable and places the Fund in jeopardy,
I believe that the impact of the proposed interim cap would be felt
disproportionately by Maine.
Two wireless ETCs serve high-cost rural areas of Maine with the
assistance of USF support. These companies have told me that they had
planned to invest a total of $15 million in new service towers and
other infrastructure in Maine this year. If the cap is implemented,
these companies may be forced to curtail investments by $2 million, and
will likely forego construction of five cell towers, sacrificing
desperately needed coverage in hard to reach areas of my home state.
I am hopeful that the Commission can find an alternative means of
reforming the Universal Service Fund without adopting the interim cap
proposed by the Joint Board.
Thank you for your attention to this matter.
Sincerely,
Susan M. Collins,
United States Senator.
______
June 5, 2007
Hon. Kevin J. Martin,
Chairman,
Federal Communications Commission,
Washington, DC.
Dear Chairman Martin:
I understand that the Federal Communications Commission is
currently considering whether to adopt the recent recommendations of
the Federal-State Joint Board on Universal Service that would place a
cap on payments from the Universal Service Fund (USF) for competitive
eligible telecommunications carriers (CETCs). Most CETCs are wireless
carriers serving rural areas of the country, including much of my home
State of Maine, and have used USF funding to expand wireless
infrastructure in regions which continue to suffer from cellular
telephone coverage that is far below the quality experienced in urban
areas of the United States. Because the proposed cap would unduly deter
continued investment in expanding wireless service in rural America, I
urge the Commission to reject the Joint Board's recommendations.
The Telecommunications Act of 1996 established the USF in order to
ensure that our rural areas would have a level of telecommunications
service reasonably comparable, in terms of prices and availability of
modem services, to that found in urban areas of the United States. Most
Maine residents and visitors would agree that this promise has not been
kept with respect to wireless service, which is either spotty or non-
existent throughout many of the state's rural communities. This is not
a mere inconvenience. Poor mobile telephone service undermines the
ability of Maine's law enforcement officers to deliver basic public
safety services. Moreover, the public increasingly relies upon wireless
service to contact public safety officials during an emergency:
according to the Maine Public Utilities Commission, nearly 50 percent
of 9-1-1 calls placed in 2006 were dialed with a cellular telephone.
The inability to get a signal on one's mobile phone could very well be
a matter of life and death.
Maine's substandard wireless coverage also hinders our rural
communities' efforts to attract new economic development. A cap on
funding for wireless service expansion, as proposed by the Joint Board,
will have a disproportionately negative impact on these endeavors. In
today's world, telecommunications means more than just a landline
telephone connection. The technological advancements of the past
decade, as well as those expected in the decade to come, have long been
viewed as a key mechanism for reducing the economic competitiveness gap
between urban and rural areas. The Joint Board's recommendations, if
adopted, could very well have the reverse effect, and exacerbate this
gap.
As an author of USF legislation in each of the last three
Congresses, I am keenly aware of the financial strains the Fund is
experiencing and the need for a solution to provide it long-term
stability. The Joint Board's recommendation, proffered as a short-term
solution, is also short-sighted. If implemented, investment in the
wireless infrastructure so desperately needed in rural America will
almost certainly be curtailed. If belt-tightening is truly warranted,
it should be done in a manner that equally affects all segments of the
industry and regions of the country, not imposed solely on wireless
carriers who serve rural customers.
In stabilizing and strengthening the USF, the Commission's goal
should be to craft equitable and permanent solutions that reflect
Congressional intent as embodied in the 1996 Telecommunications Act, to
develop Universal Service mechanisms that provide rural consumers with
choices in advanced telecommunications services, and to develop
strategies that encourage all stakeholders to meaningfully contribute
to the process. The Joint Board's recommendations do not measure up to
these standards, and I therefore urge you to reject them.
Sincerely,
Olympia J. Snowe,
United States Senator.
cc: Commissioner Jonathan S. Adelstein
Commissioner Michael J. Copps
Commissioner Robert M. McDowell
Commissioner Deborah Taylor Tate
______
June 5, 2007
Hon. Kevin Martin,
Chairman,
Federal Communications Commission,
Washington, DC.
Re: WC Docket No. 05-337
Dear Chairman Martin:
I am writing in opposition to the proposed cap on Universal Service
Fund support to competitive eligible telecommunications carriers
(CETCs) as recommended by the Federal-State Joint Board on Universal
Service.
The Universal Service Fund faces a fiscal challenge, and I
appreciate the FCC's attention and commitment to comprehensive reform
of the Fund. However, I am concerned that approval of a cap on CETC
support, though meant to be a temporary measure, could further delay
needed reform. Though the Joint Board has stated its intention to make
further recommendations within 6 months, I am concerned that a cap,
even if temporary, would set a precedent of singling out one sector of
the telecommunications industry.
Maine has two wireless ETCs that have productively used Universal
Service funds to expand service to remote areas in our largely rural
state. The growth in Maine's support has been moderate, not explosive.
I believe the cap as proposed would negatively impact the expansion of
modern telecommunications services of all types to residents in rural
Maine.
I appreciate your attention to this matter and look forward to your
response.
With warmest regards,
Michael H. Michaud,
Member of Congress.
______
May 22, 2007
Hon. Kevin Martin,
Chairman,
Federal Communications Commission,
Washington, DC.
Re: WC Docket No. 05-337
Dear Chairman Martin:
I am writing to voice my opposition to the proposed cap on
Universal Service support to competitive eligible telecommunications
carriers (CETCs) as recommended by the Federal-State Joint Board on
Universal Service.
I appreciate the fiscal situation facing the Universal Service Fund
and understand the desire to institute urgent measures to address the
financial issues. While the cap on CETC support is proposed as a
temporary measure, I am concerned that its approval could act as a
pressure valve that could lead to further delay of comprehensive
reform.
It is true that payments to CETCs are the fastest growing element
of the high-cost fund By its nature, freezing CETC contributions
improves the fiscal outlook of the overall fund. My worry is that this
action will act as a pressure valve and decrease the urgency for
broader reform. While I appreciate the Joint Board's intention to make
further recommendations within 6 months, if it does not, we could see a
``new norm'' within the high-cost fund that leaves one sector of the
industry unfairly singled out.
Maine has two wireless ETCs that have productively used Universal
Service funds to expand service to remote areas in our largely rural
state. The growth in Maine's support has been moderate, not explosive.
It is not fair that residents in rural Maine should lose the access to
modern telecommunications services under a one-size-fits-all cap.
Again, I urge the Commission to reject the proposed cap on CETC and
work toward comprehensive solutions to control cost growth in Universal
Service funds.
Sincerely,
Tom Allen,
Member of Congress.
cc: The Honorable Michael J. Copps
The Honorable Jonathan S. Adelstein
The Honorable Deborah Taylor Tate
The Honorable Robert M McDowell
______
May 8, 2007
Hon. Olympia J. Snowe,
Russell Senate Office Building,
Washington, DC.
Re: Proposed Cap on Universal Service Funding
Dear Senator Snowe:
Last July, I wrote to you asking your help in ensuring that
telecommunications reform legislation then before the Senate would not
have an adverse impact on much-needed Federal Universal Service Fund
payments. As my July 24, 2006 letter indicated (copy attached), Unicel
and United States Cellular, Maine's two wireless Eligible
Telecommunications Carriers (``ETCs''), are moving aggressively to
implement their ambitious build-out programs in Maine using these
funds. Public understanding of the role of Federal Universal Service
involvement in rural wireless infrastructure improvement is growing, as
demonstrated in the attached editorial, which appeared in the January
30 edition of the Bangor Daily News.
I was pleased to learn of your successful efforts on last year's
bill--I understand that the final version of Sen. Stevens' legislation
was benign, if not favorable, in this regard. Unfortunately, I again
need to request your assistance on an issue relating to wireless ETC
funding.
As I understand it, hearings recently conducted by the Senate and
House committees overseeing the Federal Communications Commission
(``FCC'') revealed that the Federal-State Joint Board may recommend
that the FCC ``cap'' Universal Service funding--but only to competitive
ETCs (CETCs) operating in rural areas--pending a reform of the FCC's
Universal Service distribution mechanism. I am advised that this rural
funding cap would stay in place for as long as 2 years while the Joint
Board and FCC consider possible changes to the distribution mechanism
for Universal Service support.
Given rural Maine's significant need for infrastructure
development, I am deeply troubled by the notion of capping rural CETC
funding just when our two wireless ETCs are aggressively building new
rural network facilities. I certainly understand the need for proper
stewardship of the Universal Service mechanism. However, even if FCC
Chairman Martin's estimate--that funds to CETCs will grow by $300
million in 2007--comes to pass, the projected growth would be less than
5 percent of the total $7 billion fund--hardly an emergency situation.
Also, I cannot understand why rural people should bear the full
brunt of any cap, especially in light of the enormous health, public
safety and economic development disadvantage that rural areas suffer
due to the lack of wireless infrastructure.
Accordingly, I urge you to advise the Joint Board that funding to
CETCs should not be capped, even on an interim basis. There are other
ways to control Fund growth and ensure competitive neutrality without
impeding the investment in our rural infrastructure that Maine citizens
so desperately need.
Sincerely,
John E. Baldacci,
Governor.
Exhibit 5
Resolution of the Legislature of the State of Maine in Opposition to
Cap
Joint Resolution Memorializing the U.S. Congress and the Federal
Communications Commission to Forego Imposing a Cap on Federal
Universal Service Fund Support for Maine's Rural Wireless
Carriers
WE, your Memorialists, the Members of the One Hundred and Twenty-
Third Legislature of the State of Maine now assembled in the First
Regular Session, most respectfully present and petition the U.S.
Congress and the Federal Communications Commission as follows:
WHEREAS, the Federal Telecommunications Act of 1996 through the
establishment of the Federal Universal Service Fund was intended to
promote the availability of quality services at just, reasonable and
affordable prices, increased access to advanced telecommunications
services throughout the Nation and the availability of quality services
to all consumers, including those in low-income, rural, insular and
high-cost areas, at rates that are reasonably comparable to those
charged in urban areas; and
WHEREAS, the intended goals of that legislation have not been met
in the State of Maine, and many of Maine's communities have no wireless
services or inadequate wireless service; and
WHEREAS, the failure to achieve the goals of improved and high-
quality services has, and will continue to have, a direct and
substantial negative impact on the health and safety of the people
living and working in Maine's rural areas; and
WHEREAS, the failure to achieve this goal of high-quality wireless
services at just, reasonable and affordable rates to everyone is a very
significant barrier to the economic development of much of rural Maine;
and
WHEREAS, there are 2 rural wireless carriers in Maine that have
successfully sought certification as eligible telecommunications
carriers and have used the Federal Universal Service funding they have
received to construct significant additional wireless infrastructure in
rural Maine; and
WHEREAS, the Maine Public Utilities Commission has certified that
these Maine rural wireless carriers have used the funds received from
the Federal Universal Service Fund in a manner consistent with all laws
and regulations governing the funds; and
WHEREAS, the Federal-State Joint Board on Universal Service has
recommended that the Federal Communications Commission impose a cap on
funding for competitive eligible telecommunications carriers; and
WHEREAS, this recommended cap would limit Federal Universal Service
Fund support for Maine's rural wireless carriers currently receiving
these funds; and
WHEREAS, the proposed cap on funding would serve to undercut the
purpose and objective of the Federal Telecommunications Act of 1996 by
impairing the ability of Maine's wireless eligible telecommunications
carriers to expand infrastructure into rural Maine so that rural and
urban wireless service is equal, as promised by that Act; now,
therefore, be it
RESOLVED: That We, your Memorialists, on behalf of the people we
represent, take this opportunity to request that the Federal
Communications Commission reject the cap proposed by the Federal-State
Joint Board on Universal Service; and be it further
RESOLVED: That We, your Memorialists, respectfully urge and request
that the United States Congress take action to repeal the cap if it is
adopted by the Federal Communications Commission; and be it further
RESOLVED: That suitable copies of this resolution, duly
authenticated by the Secretary of State, be transmitted to the
Honorable Kevin J. Martin, Chairman of the Federal Communications
Commission, to the President of the U.S. Senate, to the Speaker of the
U.S. House of Representatives and to each Member of the Maine
Congressional Delegation.
______
State of Maine
June 6, 2007
Hon. Marlene H. Dortch,
Secretary,
Federal Communications Commission,
Washington, DC.
Re: Docket No. 96-45
Dear Secretary:
Forwarded herewith are Comments of the Maine Public Utilities
Commission in the above docket with regard to the Recommended Decision
of the Universal Service Joint Board.
Should you have additional questions, you may contact Trina M.
Bragdon, the primary staff person in this docket.
Sincerely,
Trina M. Bragdon
Maine Public Utilities Commission.
Enclosure
______
Before the Federal Communications Commission
Washington, DC
In the Matter of Federal-State Joint Board on Universal Service
High-Cost Universal Service Support
CC Docket No. 96-45
WC Docket No. 05-337
Comments of the Maine Public Utilities Commission
The Maine Public Utilities Commission (MPUC) is a state regulatory
agency charged with ensuring that there is a regulatory system
consistent with the public interest and with State law. It is the
policy of the State of Maine to ensure that access to advanced services
be made available to all communities without regard to geographic
location, 35-A M.R.S.A. 7101. With these duties in mind, the MPUC
files these initial comments in response to the Notice of the
Commission published in the Federal Register on May 23, 2007.
We recognize that the existing Universal Service Fund mechanism for
providing support to competitive carriers is causing the Federal
Universal Service Fund to grow substantially in some areas of the
country. We also recognize that the ``equal support rule'' which bases
support payments for Competitive Eligible Telecommunications Carriers
(CETCs) on the support payments of the incumbent carrier is causing the
Fund to grow dramatically. The ``equal support rule'' is also providing
more total support than is needed in some states because in those
states the incumbent's costs are much greater then those incurred by
the wireless CLEC to provide full rural area wireless coverage.
Furthermore, in some states the CETC support is not being used by
carriers for rural ``build-out'' purposes.
Nevertheless, there are states, such as Maine, where the current
CETC support is not excessive. This occurs because the costs of rural
wireless build-out are higher than the national average and in many
cases are higher than the costs for providing wireline service. The
MPUC also requires that all CETC support be used to build-out rural
systems and it monitors compliance with that requirement.
The capping of the CETC support at 2006 average payment level will
likely cause delay in the construction of towers in Maine that have
been planned for the next year, even if Maine designates no additional
CETCs. These planned towers would generate little if no revenue for the
wireless carrier because the areas they serve have very few fixed
customer locations. Nevertheless, the public health and safety requires
remote areas to be provided with mobile wireless service and Universal
Service support for such service should be continued.
Instead of capping the CETC fund nationally at average 2006 levels
for each state, the MPUC suggests capping the Fund only in those states
where growth has been excessive and where state commissions have not
established mechanisms to insure that all CETC support is used for
rural build-out purposes. If the growth in CETC support for each state
were limited to provide funds needed to cover planned rural build-out
projects and states were required to certify that the support was both
needed and being used for rural build-out purposes, the growth in the
Fund should be controlled. Rural wireless build-out could then continue
at a moderate price while support mechanisms for CETCs are reexamined.
The solution to controlling rapid growth of the CETC USF should
focus on those areas causing the problem and not penalize those areas,
such as Maine, where the growth in the Fund has been moderate and all
funds have been used for their intended purpose. Since the FCC has not
acted on meaningful Universal Service reform since 2001, we are very
skeptical that the proposed emergency cap will, in reality, last for a
short time as the concept's advocates suggest. Rather, we believe an
extended moratorium will occur that will significantly delay rural
infrastructure investment in advanced services. Therefore, a cap at
average 2006 levels is likely to irreparably harm rural residents of
Maine.
Accordingly, the MPUC respectfully suggests that the Commission
give serious consideration to the approach suggested above so that
wireless rural build-out may continue in Maine and other similarly
situated areas.
Respectfully submitted,
Trina M. Bragdon, Esq.,
Maine Public Utilities Commission.
Senator Stevens. Thank you very much.
On behalf of the Chairman, let me ask you his questions.
This first question would be to all members of the panel.
One criticism of the so-called ``identical support rule'' for
Universal Service is that it results in an overly generous
support to wireless carriers because levels of support are
based on the cost of providing wireline services. In light of
this, Chairman Inouye wants three questions answered. ``Do you
believe that Universal Service should support both wireline and
wireless service in rural America? Would it be possible to
construct a model for wireless carriers that would calculate
support based upon the cost of wireless carriers? Third, what
effect would tying wireless support to wireless cost have on
the size of the Fund?''
Mr. Rooney?
Mr. Rooney. Let me take it in order. First of all, I would
say that it would be in the interest of the government, the
U.S. Government, and good policy, to have the lowest-cost
provider of service being the primary provider of service in
the area. I think technology has overtaken things that have
taken place in the past. If wireless service provides service
in the most economical and reasonable fashion--those costs
should be used, but they should be used for everyone that is
providing that service in those areas. In other words, this is
to use the highest cost to justify recompense is sort of
turning the whole idea of competition upside-down.
So, yes, this whole thing needs to be reworked. And we're
not at all opposed to a complete review of this particular
situation. I've been on both wireless and wireline sides of
this thing, and basically you go back to the days where, you
know, wireline service was the only dependable service.
Wireless service now is as dependable as any service in the
world. And it can be delivered at a much lower cost. And to
continue to subsidize the provision of the high-cost provider,
rather than the low-cost provider, seems to me contrary to
everything that we stand for. And, yes, I'm pushing wireless,
because I happen to be in the wireless industry, but I also
know the capabilities of the wireless carrier.
Senator Stevens. Thank you.
Mr. Nishi?
Mr. Nishi. We believe that the services--wireless and
landline service--they're complementary in nature. So, yes, we
believe that there should be support for both types of services
so that both networks are sufficiently built out. And in the
long-term, we believe that will benefit all the citizens of the
U.S.
As to the second question, whether a model can be developed
for wireless support, we believe that one can be developed. Our
models for wireline companies today are based on our cost of
doing business. And we do come up with our costs, and the funds
are adequately distributed from those costs.
So, I do believe the wireless industry can come up with a
plan. And, when they do come up with a plan or a costing type
of model, I believe that their costs will be less, given the
fact that they have not had carrier-of-last-resort obligations
and they have not been regulated in the same fashion we have
been through all the years. So, I think that is a possibility.
Your third question, as to what effect it would have on the
size of the Fund, I think the Fund for the wireless industry
would be less than what they're receiving today, based on the
identical support rule. As I've said, the identical support
rule is illogical, it's based on our costs, not on the costs of
the wireless companies and their cost of doing business.
Senator Stevens. Mr. Foxman?
Mr. Foxman. Yes. To your first question, ``Should both
wireless and wireline be supported?'' I think the perspective
on that should be that it's not so much about the delivery
mechanism as it is about the supported service, because, just
as we're having this discussion here today, a year from now, 2
years from now, there may be a new technology that's able to
deliver those services to customers, too, and they shouldn't be
excluded from the public interest, for the benefit of the end-
user, there shouldn't be a restriction based on what our
technology and delivery mechanism is. So, yes.
And tying in, I guess, with the second question, too,
about, ``Is it possible to do a model for wireless?'' I think
the issue of competitive neutrality comes up in that. If we
have a different model for each different kind of company that
comes and proposes to deliver a service, how long does that
take? When is the right stage, when a new technology is
offered, to build that model? I think that would get very
challenging to be able to manage.
That said, we certainly could come up with a model. You
know, we, as operators, know our own costs, and I don't think
we would have problems sharing that information.
As it relates to what that actually means for the size of
the Fund, and what our costs would be, I think a complicating
issue there is, it really depends on what stage of development.
So, if the public-interest benefit that we're trying to get to
is building networks in places that are underserved and have a
great need today, the cost of doing that for any service
provider can be very high. The cost of, for example, edging out
a new network into more rural places is one thing, the cost of
deploying new service, wireless or any other technology, in a
completely underserved area is going to be much greater than
that.
Senator Stevens. Mr. Lubin?
Mr. Lubin. Thank you.
With regard to the first part of the question, ``Should
Universal Service support both wired and wireless?'' from my
point of view, I would say that is a clear public policy
question that the public policymakers must answer. If the
answer is yes, then AT&T Wireless will be very eager to serve
those rural areas. Just as we are an ETC in five states today,
we will be very eager.
The question gets to be somewhat more complicated once a
policy decision is reached if you want to support wireless, and
that is, what is most critical. I believe there are four
questions to be answered. Do you want it supported? If the
answer is yes, which I assume it is, given this discussion, the
next question is, what areas do you want to serve? And I assume
it's the underserved rural areas. And so, then you would have
to make sure that we have a plan that's designed to support,
truly, the underserved areas. The third part of that question
is, am I going to support one CETC or multiple CETCs? It's a
critical question to be answered. And the final question is,
the identical support rule, do you want to use the same cost
structure as the incumbent? Probably the same cost structure is
not appropriate, but the point is, once you answer all four
questions, the final point is, do we have any idea how big the
size of the Fund will be? Well, depending on how you answer
these questions, the size of the Fund could become extremely
large. That is why AT&T has put a pilot on the table, to say,
``Let's begin to learn, specifically, answering your specific
questions.''
And the final point here is, not only is this addressing
wireless, but there was a panel here about a month or two ago
before you talking about broadband deployment. So, now the
issue is, how much funding can we have, and how much are
customers ultimately going to pay? Because it's all about what
is seen on the customer's line of their bill. And so,
ultimately, we're going to have to answer these questions, but
we're going to have to ultimately prioritize, depending on how
big the size of the Fund gets, if we are truly interested in
serving underserved areas, which AT&T is, and that's why we've
put the two pilots on the table.
Thank you.
Senator Stevens. Chief Flannery?
Mr. Flannery. Well, Mr. Vice Chairman, I'm certainly not a
policymaker in this discussion, but I will tell you how this
looks from the law enforcement standpoint in the rural State of
Maine.
Should there be support for both in the Universal Service
Fund? I definitely think the formula needs to be adjusted to
take care of the underserved wireless parts of rural areas. I
think that your comments, made earlier, at the beginning, that
the FCC had the power beforehand to--Ms. Tate had said that she
knows the issues and the problems that need to be addressed,
but yet, there was no action taken to do that, but just to make
this cap on primarily the wireless carriers.
How does this affect us in the State of Maine to accomplish
our homeland security initiatives? It pretty much handcuffs us
to do that. We're currently, right now, working on being able
to establish different training sessions to carry out mass
casualty and mass disasters in the area of central and northern
Maine. And we're having a problem right now identifying areas
of where there's wireless service to implement and place our
command posts for communications to be able to get weather
broadcasts and Internet access. So, you can see that that
portion of it is a very crucial aspect for the State of Maine
and other rural areas.
So, I guess the question is--the model to calculate should
be based more on what Mr. Lubin had said about where the actual
need is, and identify that. Things change in law enforcement,
day in and day out, as much as they do at the FCC. And it's
important for you to prioritize and to recognize where your
priorities are, and take action toward resolving these. I
haven't seen that done.
Senator Stevens. Well, thank you.
I just want to ask one of my questions and then let the
other Senators ask questions, and I'll come back to the Senator
Inouye's questions later.
One of the problems I have with this situation is that we
have, in these small communities, legacy carriers that are
basically fixed-wire distribution hooked into satellite
communications, in many instances. The new wireless services
are--those services, by the way, are primarily local people who
started these small systems, and have improved them as much as
they could under the circumstances of the income that they're
receiving plus the Universal Service support they get--when the
wireless services come in and compete, they get the money from
the Universal Service Fund based upon the legacy carrier's
costs. And there's a windfall there. But with the windfall
comes a situation where they destroy the local legacy carrier
and local employment is gone, the local investment's gone, and
we find that there's a distant carrier--in terms of
emergencies, they're not there.
How do you answer that? Somehow or other, I think we have
to find some way to preserve the local carriers, where they
perform more of a service than just delivering a hookup. They
are part of the emergency system, the local legacy carrier,
resident in the area, and I think that it's the worst problem
that we face, along comes a new carrier, primarily from a
company miles away, and there's no attempt to restore service
in the local area in the event of an emergency, as there would
be from the people who are resident there and trying to restore
service. Am I getting across, Mr. Rooney?
Mr. Rooney. Well, with all due respect, Senator, wireless
service, at least in the experience that I've had, generally
speaking, has responded to emergencies better than the wireline
services.
Senator Stevens. How far away is your wireless service
compared to where the people are?
Mr. Rooney. Well, can I talk about a prior life for a
minute?
Senator Stevens. Sure.
Mr. Rooney. Because Senator Inouye would be very, very
familiar with this. But in a prior life, when Iniki hit
Kaua`i--the company that I was president of was headquartered
in Chicago--we effectively were the only telecommunications
supplier up and operating in Kaua`i through the hurricane and
through its recovery period. The landline service went down,
and the other wireless service went down.
In the case of Missouri, back in the 1990s, when they had
the flooding that basically broke down every dam and berm in
the area, our wireless service was serving the Red Cross and
other places when the landline service was down.
Excuse me, but there's one more point. In current service,
in New England, when they had the flooding last year, and in
Missouri again this year, when the services went down, we
operated, because we're now building what they call ``hardened
sites.'' And our engineers live in the communities that they
work in, so the repair people, the people that service these
places, are part of the communities we serve. This isn't like
having guy come in with a satchel and put up a terminal and
then walk away from the area that they serve. I think wireless
basically has demonstrated, time and time again, its viability
and its ability to operate quickly and over a period of time in
service areas where there is trouble.
Senator Stevens. Well, I don't want to prolong it, but I
have the vision that the wireline services have local people
involved, local investment, and the newcomers are basically
from outside those communities. I understand what you're
saying, during an emergency, but during just routine operation,
I have the vision that, with these new situations, they just
come in and put up an automated thing somewhere on a hill near
the community, and that's the communications service, there's
nobody that goes with it, there's no one local at all.
Mr. Rooney. With all due respect, that's not the way we
operate.
Senator Stevens. Is that true, Mr. Nishi?
Mr. Nishi. I can't speak to Mr. Rooney's company, but I do
know that, for the rural ILECs, we are in the communities we
serve, we are part of the community. We're proud to be a part
of the community, and we make contributions to the communities.
Senator Stevens. Well, I won't prolong this, but I'll get
back to Senator Inouye's questions. I believe we have to have
modernization, and I don't understand this cap, on the CLECs,
because they're bringing in new service, and not having any
caps at all on existing service. On the other hand, I do not
understand why we should take away from the smaller communities
their local investment and their--the people who have pioneered
communications simply because someone else comes in under the
existing rules and gets paid the same thing that the wireline
service carrier gets, in terms of Universal Service support
where their costs are so much lower. It's not really a fair
competitive advantage that they have when they come into the
community.
Senator McCaskill?
Senator McCaskill. Thank you, Mr. Chairman.
I'd like to ask the representatives--Mr. Rooney and Mr.
Nishi and Mr. Foxman--if any of your companies are taking
advantage of the RUS program in USDA, the program to expand
broadband service that is available, the loan program that is
available there.
Mr. Rooney. I'm not aware that we are.
Mr. Foxman. We're not, either.
Senator McCaskill. Mr. Nishi, is your company?
Mr. Nishi. I know that there are various rural exchange
carriers throughout the U.S. They are taking advantage of the
plan. We are currently reviewing a lot of the rules and
regulations with the plan to see if there are ways that can
enhance rural carriers to make it more of a value to them.
Senator McCaskill. Could any of you explain why you are not
utilizing the RUS program within USDA that we have appropriated
hundreds of millions of dollars to support?
Mr. Rooney. To be very honest with you, I wasn't aware of
it.
Senator McCaskill. Yikes. OK.
Mr. Foxman. I've spent a little bit of time, and we're
investigating it. But, frankly, one of the challenges we've had
is that it's extremely complicated to navigate, so, with some
assistance, we're trying to do that now, but, frankly,
struggling with it.
Senator McCaskill. Let me ask you, Mr. Nishi, if we got rid
of the identical support rule, would you then oppose this cap?
Mr. Nishi. I think getting rid of the identical support
rule is key. And if we did get rid of the identical support
rule, I'm not sure we would need a cap at this point in time. I
do believe that a cap will spur people to really work on this
issue. I think people are working on this issue very seriously
now, given everything that's been said in this hearing and in
other hearings dealing with Universal Service funding. We're
taking what you're saying very seriously, and what the Joint
Board is saying very seriously.
May I add one thing----
Senator McCaskill. Sure.
Mr. Nishi.--in terms of what Mr. Rooney said regarding
wireless networks? One thing that we do--all networks are
interconnected. And anytime there is an emergency, for wireless
service to be working, our networks are also working. And I do
need to note that is because we do provide backhaul for many,
many of their wireless cell sites.
Senator McCaskill. I think the points Mr. Rooney made were
good about wireless being there in times of natural disaster. I
think a lot of people think of the 9-1-1 system when they think
of an emergency, they think of the individuals that are calling
for help in an individual law enforcement setting.
I would also point out that the wireless has become very
important in terms of law enforcement because of the tracking
capability of cell phones. We just had a horrendous abduction
and murder of a young woman in the Greater Kansas City area, on
the Kansas side of the line, and it was too late, but they were
able to find her body quickly and apprehend the suspect because
they were able to ping her phone. So, I think it's important to
remember that the wireless world is a contributor, in terms of
the law enforcement community. And I think, with technology,
it's going to continue to be an even bigger player as it
relates to the more traditional role of law enforcement, aside
from the kind of natural disasters that you referred to, Mr.
Rooney, in terms of hurricanes or floods or things of that
nature.
Mr. Rooney. If I fell into a ditch in the middle of
Missouri, I'd sure as heck be very grateful that I had E-911
service that could help find me.
Senator McCaskill. They can find you, in terms of a GPS
system. I think a lot of Americans don't realize that there is
a built-in GPS capability on their cell phones at this point.
You've got my attention, Mr. Foxman, when you said ``cost-
plus.'' That's like for me, as a former auditor, that's like
fingernails on a blackboard.
[Laughter.]
Senator McCaskill. And that term, in and of itself, will
bring my attention back to whatever is being said. And so, I
would like to ask questions of the other representatives of the
companies that are in this for ultimately--I mean, we have to
be honest here--I know all of you want to talk about serving
community first, but all of you have to make a profit, you're
in business to make a profit, you wouldn't be in business if
you weren't making a profit. And so, I want to talk to the
other reps about the fact that we have no downward pressure
whatsoever on the average cost to deploy, the way this is set
up. Do you all agree with Mr. Foxman's analysis that the way
this is set up right now, we are not incentivizing anyone to
try to do this at the lowest cost in the most efficient way?
Mr. Rooney?
Mr. Rooney. I think my understanding of landline accounting
is that it's completely upside-down. You can go back a few
years ago, when the Congress was trying to work out access to
landline service, and deal with accounting for local loops and
TELRIC and all that kind of stuff. Instead of having a nice
simple generally accepted accounting principle definition of
costs, you went through tremendous law readings, and then, you
know, you'd come up with an answer, and then it went to the
appellate courts. And, you know, landline accounting is all
convoluted, and I mean, when you look at the accounting that we
use for our cellular business, it's GAAP. So, what you see is
what you get. And I'm perfectly willing to have everybody use
GAAP accounting to try and determine what the cost of
deployment is. And, yes, it should be lowest-cost winner.
Senator McCaskill. Mr. Nishi?
Mr. Nishi. When Mr. Foxman referred to ``cost-plus,'' I'm
assuming that he means an adequate return on our investment. I
can say that when we build networks, we build them as
efficiently as possible, as we try to get advanced services out
to the customers we serve. I will add that, since the cap was
reindexed in 2001, and when $2.5 billion didn't come to the
rural ILECs, that that did directly impact our bottom line at
Waitsfield and Champlain Valley Telecom. We had to make hard
decisions on where we were going to deploy our new networks.
And, in fact, that's one thing which--I think many people fail
to realize that there's the whole issue of sections 201 and
254, and the sufficiency principle, and affordable and
comparable rates. The high-cost loop-support mechanism--in
Vermont, on an annual basis, we send out a letter to our
consumers, saying, ``Without such high-cost support funding,
your rate would be such-and-such dollars higher.'' So, that
amount we have received from the Fund has gone to help keep
local rates lower. So, it has impacted our operations over
time.
I'm not sure I got to the heart of your question, but----
Senator McCaskill. I think you danced a little, but I'm not
going to hold you responsible for that.
Yes, Mr. Lubin?
Mr. Lubin. Thank you.
I'd like to take your question apart a little bit, because
a lot of things get said, and generalizations are being made,
and I'd like to unpack it.
Right now, the ILECs, incumbent local exchange carriers,
are generating roughly $3 billion of the $4 billion, using 2006
values. Of that $3 billion, there's something known as, let's
say, ``nonrural companies,'' who are getting access to the
Universal Service, but under a different set of rules. These
are generally what is known as price-cap companies. For those
companies, it is not cost-plus. It is not. Even further, if one
of those companies loses a line, they lose money. Again, a
point that was somewhat misleading here today.
Then, there's $2 billion of the $3 billion that go to rural
companies.
Senator McCaskill. Right.
Mr. Lubin. Of that $2 billion, $1 billion of it,
approximately, is from the high-cost loop fund. That fund is
capped. And if lines decline, the aggregate dollars decline.
And what we're seeing today in rural America, generally, is
rural lines are declining, and the aggregate is going down.
The rural lines may be declining for a couple of reasons,
one of which is second lines are declining because of
broadband.
Senator McCaskill. Right.
Mr. Lubin. And you have some wireless substitution, albeit
possibly not as great as people think, because the growth of
wireless is really another service, called mobility. We can
debate that point, but that's OK, because if people want
mobility, right now that is being allowed. But there's another
point of why mobility is growing so much. In this country, 21
percent of the households have probably three or four wireless
connections. So, the identical support rule does have a
problem. It has a problem, because it's created off of an
incumbent LEC that doesn't have 21 percent of their households
with three or four lines, causing the overall cost to
potentially go up. How much higher, we can debate all these
things.
Now, what about the remaining $1 billion, right? Because I
said there's $3 billion, and I've now said, hey, there's $1
billion.
Senator McCaskill. Right.
Mr. Lubin. That $1 billion is something known as ``cost-
plus,'' which is rate-of-return regulation. And I want to give
you the plus and the minus of that.
The minus could be, well, hey, there's a mentality of you
can put in more dollars.
Senator McCaskill. Right. I get the minus part. Give me the
plus part. That's what I'm asking----
Mr. Lubin. I'll give you the plus part. The plus part
again, it all depends where you stand or where you sit whether
it's a plus or not, but the rural companies have been doing a
pretty good job--and I think you alluded to it in your opening
statement, whereby they're deploying more and more
infrastructure that potentially could help them for broadband
deployment. Some people would call that a plus, some people may
say that's not a plus. But the point here is, if we think
broadband deployment is a good national goal, then they've got
a mechanism in place that, in fact, is encouraging them to do
that. Now, whether it's gold plating, that issue always comes
about, and, from my observation--I'll let Roger Nishi speak to
it--these companies are trying to figure out how to survive in
the new world as we move from a circuit-switched world into a
broadband world with VoIP application and many other
applications.
Senator McCaskill. Well, thank you for that.
And thank you, Mr. Chairman. There is a little irony, that
the plus part of the billion that you referred to is actually
not part of the legislative intent of this Fund, which is kind
of what I alluded to before. Your explanation as to why the
cost-plus part of the program, the billion dollars, which is,
you know, a lot of money that consumers are paying--is helping
something that, frankly, the RUS program is supposed to be
helping, but this money wasn't even designed to help. So, that
just goes to the point that we've got to get at this broadbased
reform in the whole area.
Thank you all very much.
Thank you, Mr. Chairman.
Senator Stevens. You're absolutely right, Senator, and I
don't think it can be solved without legislation. I'm not sure
the FCC has the power to reach over to the other Department and
say, ``You've got to coordinate with us and do it the way we
say.''
Senator Snowe?
Senator Snowe. Yes, thank you, Mr. Chairman.
Sheriff Flannery, I thank you for being here today, and I
want to thank you, as well, for your 29 years of service to the
State of Maine law enforcement. And I appreciate your views
here today, because I think it does give the dimension of the
realities, you know, on the ground in law enforcement and
homeland security, which is of, obviously, our national
interest.
Can you speak to some of the realities of this technology
gap, you know, between accident responses and domestic violence
responses, for example? I know you've included that in some of
your filed testimony, but I think it also is illustrative of
the problems that we face in the areas that have neither
subsidy in a nonexistent wireless service.
Mr. Flannery. Right. I have three sons, and they're all in
some type of public service or another--one, the Army; one, the
Navy; and one's a paramedic in Somerset County, which, as
you're aware, is just north of Kennebec County. Just before I
came down to D.C., I spoke with my son, who is the paramedic up
in Somerset County, and asked him ``What is one of the biggest
impacts on you, involving wireless service, and the lack
thereof?'' And, of course, he talks about Route 201 coming
right up from Skowhegan all the way up into Jackman and the
Canadian border, having accident scenes there--and some of them
are quite horrific, between tractor trailers with logging
trucks and severe recreational accidents--not being able to
call the hospital to speak with the doctor in the emergency
room to be able to provide them with information on the injured
party so that they can treat the patient the way the patient
needs to be treated at that time. So, what they have to do is,
they do the best they can at the ground level, load the patient
up, and drive, if possible, to an area where they have cell
service, so that they can communicate with the hospital as to
what's going on with the patient. And I will tell you that, at
times, he has said that that has made a difference in life and
death. And we should be resolving that problem when these
people--there's no reason not to.
Senator Snowe. Well, I--go ahead.
Mr. Flannery. We've had numerous hostage situations lately,
where the hostage negotiator wants to be able to establish a
view of the residence or building where the hostages are
located, so that he or she can see the scene as it's playing
out, while they're negotiating with the subject on the phone.
Many times, we have to send that hostage negotiator off, you
know, 2 or 3 miles up and down the road to be able to get a
signal to talk to the person to be able to commence with
negotiations. That's kind of a ``haphazard'' way of doing
things, because it now takes that hostage negotiator out of
seeing what's going on, and now you have a radio in one ear,
telephone in the other, to try to see what's going on, on the
scene, with--you have to mute, and as you can see, it creates a
major problem when things are happening at lightning speed.
What's going on in the State of Maine right now with this,
is that the legislature has made new laws allowing for private
business to negotiate and work with the State government on
working with private property, their own property, and State
property, to be able to utilize putting up wireless information
systems so that the entire Department of Public Safety system
is based on their MDTs, mobile data terminals, are based on
wireless communication through the cell phone service, and they
have never had yet to get it to work because of the
inefficiencies in the wireless system in the State of Maine.
So, for us to be able to fulfill our obligations of homeland
security, we have reached an obstacle where we can't do it that
way. Some of us have gone with radio frequency to try to get
over that hurdle for now; but what that does, it limits you
into your own system, not being able to get into outside
systems, as far as the Internet goes. So, it helps with going
over the state's communication system to check on wants and
warrants for individuals, but we're also starting to eat up
that bandwidth, because the only way we can access other
services in the system--we can't use wireless, so we have to go
through the state's metro system to be able to do that, so
there's a big caution right now of eating up all that
bandwidth. So, we're trying to get around it, but yet, we're
going to hit a wall here eventually on that. And that's only
for those areas that have decent wireless service in their
communities. Aroostook County, as you well know, doesn't. And
they have a very, very difficult problem, as well does Somerset
County, where I was talking about my son. He's had
opportunities where they've been off-trail into ATV or
snowmobile accidents, and had to send his partner up a hill to
get a signal so that he could tell LifeFlight the GPS
coordinates, so they could fly in to a particular area to pick
up the patient. And, of course, all that takes time.
One that really sticks in my mind, he told me about, was a
rafting accident on Kennebec River. The raft turned over,
everybody went in the water. One person had swallowed a lot of
water, and the rafting guide got the person onshore, began CPR,
and sent another rafter off to the--there's no cell signal
there on the water--so, sent him off to the road. No cell
signal on the road. Stopped the first car coming by to have him
give him a ride to the next house to get to the phone line,
make the phone call. My son got a call 45 minutes later, after
the incident happened, arrives there 20 minutes later, and was
unsuccessful in reviving the person.
Senator Snowe. Well, I appreciate that. And, obviously, I
think, your examples, I think, illustrates the point, frankly,
that the lack of wireless service is not just mere
inconvenience, it's a matter of life and death. And, obviously,
even, you know, creating perilous circumstances for our country
with respect to homeland security, as we are trying to
integrate that national response, as well, and that includes
the rural areas of America.
Mr. Rooney, your plans for Maine--I know--and I think this
is indicative of the other states in which you serve--
obviously, are going to be put on hold as a result of this cap,
as I understand, from what I've----
Mr. Rooney. The new service would be. And one of the
inequities of the cap is Maine gets hurt, going forward. But we
have three states that we serve--Illinois would be eligible--if
they froze the cap--ineligible to--competitive communications
operation would be eligible for $2,000 of funding, because
that's what they've got right now. And in Missouri it would be
$120,000. This is the total.
Senator Snowe. Total.
Mr. Rooney. And in New Hampshire, where Senator Sununu's
from, it's $103,000. So, there's inequity between the states.
Each one of these three states, by the way--when we look at
going into these areas, we're going into what I call ``virgin
territory.'' There isn't anybody--we're talking about where
there is no cell service. In some of the other States, like
Washington and Oregon, it's going to get complicated when
analog service goes away, because a lot of the areas in Maine,
when we built the system, back in the 1980s, were set up for 3-
watt bag phones. We don't use 3-watt bag phones anymore. The
phones that we have are six-tenths of a watt. Analog service
isn't being supported by anybody anymore, so that goes away
next year. And, effectively, now, to fill in those areas and
provide any kind of service that would be called reasonable, we
have to build another group of towers to effectively fill in
the areas where these little six-tenths-of-a-watt phones
wouldn't reach. So, there's the capital requirements to
sustain, and, especially in rural areas, build further, are
very significant, and I think you know some of the areas in
Maine. There's not enough traffic on an ongoing basis to
justify a $350,000 investment.
Senator Snowe. I appreciate that, and I appreciate the
panel here today. And I'd say that this is a matter of public
interest, as well. I know that Commissioner Tate indicated
that--hope that the industry would reach a consensus on some of
the questions, and, obviously, the dimensions on identical
support rule and so on. And I think that's a real issue, as to
whether or not the industry is in a position. But I happen to
think that the cap is going to be a disincentive to doing that,
because it's going to affect, singularly, one sector of the
industry.
Is it possible to reach a consensus within the industry on
this question, between wireless and wireline? Mr. Lubin,
finally?
Mr. Lubin. Thank you.
AT&T possibly is in a unique situation, both a wired
company and a wireless company. And, as I said before, we're
currently in five States, as a competitive ETC and we have
applications in five other States. And so, on one hand, we're
very eager to try to figure out how to get this done so that we
can go in and put in the right infrastructure, be it for
wireless. On the other side, the reason why AT&T is supporting
the cap, which means we're going to take money away, and we're
going to have the problem that Mr. Rooney's highlighting in
selected areas--by the way, it doesn't mean, since we're going
to still get some money--there are some places where we still
could invest, but not as much as we otherwise would. And so,
the only reason AT&T, in my opinion, is supporting the cap is
to figure out a long-term solution. So, now the issue that
you're asking is, will there be the ability to reach consensus?
I think it's going to be, (a) difficult, because there's
obviously a lot of money on the table, and (b) if there is no
cap, my fear is, we lose an opportunity, because we don't get
the parties to come to the table with real passion to try to
figure out a compromise. And that's my fear, with it being
uncapped.
Bottom line is, if we don't figure out a long-term
solution, we've just lost one super opportunity to try to
figure out how to really get the money, as Mr. Flannery
highlights, into the underserved areas, if that's what the
public policy decisionmakers elect to do.
Senator Snowe. OK.
Yes, Mr. Foxman, yes, very quickly.
Mr. Foxman. Very--sorry, I just----
Senator Snowe. Yes, thank you.
Mr. Foxman.--wanted to respectfully disagree that I think
that the nature of the cap accomplishes the exact opposite. If
we wanted to fix the problem properly, then--everyone works
best with a deadline--put the pressure on the Commission, on
the industry, whoever, to get it done.
Senator Snowe. Yes, because it's not balanced, as it
stands. And, frankly--hopefully, the industry would, but
certainly FCC's action shouldn't be predicated on that, and
should, defer this rule and try to reach an agreement.
Senator Stevens. We're going to have to call it off. I
don't know if you realize it, the President's coming up. The
halls will be closed soon. And we have to get back to the
Capitol before the doors close.
So, I do appreciate very much your appearances here today,
and I think we all have a better understanding of the problem.
I'm not sure we've got the solution, but we understand the
problem. Thanks for your courtesy in coming and joining us
today.
We will submit the Chairman's questions and the ones I
would ask. They're very few. I would ask you to respond to
them, if you will, please.
Thank you very much.
[Whereupon, at 12:20 p.m., the hearing was adjourned.]
A P P E N D I X
Prepared Statement by Hon. Daniel K. Inouye, U.S. Senator from Hawaii
Today the Committee revisits a familiar topic: Universal Service.
More than a decade ago, in the Telecommunications Act of 1996, as a
Congress, we made clear that we are committed to the principle of
Universal Service. We stated that in all regions of the nation--rural,
urban and everywhere in between--consumers are entitled to comparable
services at comparable rates. The Federal Communications Commission was
charged with translating this lofty principle into concrete action. To
do so, they set up the Universal Service Fund.
But today, that fund faces some difficult challenges. If the Fund
continues to expand at its current pace, some say we may jeopardize
Universal Service itself. Incumbent carriers urge us to place limits on
the ability of other carriers to access these funds. How is it
feasible, they ask, for the Universal Service Fund to support so many
different carriers serving so few customers in rural areas?
Still other carriers, many of them wireless providers, ask if it is
fair to reduce support that may be necessary to serve large swaths of
rural America. In order to provide comparable services at comparable
rates, they say they need access to these funds.
Last month, the Federal-State Joint Board on Universal Service
weighed in on this matter. It recommended that the Commission cap the
amount of funds available to competitive providers as an interim
measure, pending broader Universal Service reform.
In the end, we cannot let short-term proposals free us from the
need to address long-term reform. If comprehensive reform requires a
more vigorous review of the identical support rule or any other aspect
of existing policy, we should proceed down that road. After all,
ensuring the long-term sufficiency and stability of the Universal
Service Fund means ensuring that all of our citizens have the
communications capabilities they need to compete in the global economy.
______
Before The Federal Communications Commission
Washington, DC
June 6, 2007
In the Matter of High-Cost Universal Service Support
Federal-State Joint Board on Universal Service
WC Docket No. 05-337
CC Docket No. 96-45
Comments of ComspanUSA
ComspanUSA (``Comspan'') files the following Comments in response
to the Federal Communications Commission's (the ``Commission'') Notice
of Proposed Rulemaking issued on May 14, 2007.\1\ Specifically, the
Commission has requested and Comspan offers these comments on the
recommendation of the Federal-State Joint Board on Universal Service
(``Joint Board'') that the Commission impose an interim cap on the
amount of high-cost support that competitive eligible
telecommunications carriers may receive.\2\
---------------------------------------------------------------------------
\1\ In the Matter of High-Cost Service Support Federal-State Joint
Board on Universal Service, WC Docket No. 05-337, CC Docket No. 96-45,
Notice of Proposed Rulemaking, FCC 07-88, (rel. May 14, 2007) (NPRM).
\2\ Federal-State Joint Board on Universal Service, WC Docket No.
05-337, CC Docket No. 96-45, Recommended Decision, FCC 07J-1, (rel. May
1, 2007) (Recommended Decision).
---------------------------------------------------------------------------
I. Introduction and Summary
Comspan is a wireline competitive local exchange carrier (``CLEC'')
and a competitive eligible telecommunications carrier (``CETC'')
delivering broadband voice, data, and video services to rural
communities and small towns in the State of Oregon. Through its state-
of-the-art fiber-to-the-home (``FTTH'') networks, Comspan is fulfilling
the central goals of the Telecommunications Act of 1996 (the ``Act'')
\3\ by bringing competition, higher quality services, lower prices, and
the rapid deployment of innovative telecommunications technologies to
Oregon markets.\4\ And significantly, Comspan is directly addressing
the Universal Service goals of the Act by delivering these services to
those high-cost areas of the state that have largely been ignored by
the incumbent local exchange carriers (``ILECs'') and the local cable
companies.\5\
---------------------------------------------------------------------------
\3\ 47 U.S.C. 251 et seq.
\4\ Id.
\5\ See generally, id. 254(b).
---------------------------------------------------------------------------
Comspan has already completed FTTH networks in two Oregon cities
and has plans to build networks in an additional ten small towns and
rural communities throughout the state within the next year. However,
Comspan cannot fund the substantial capital needs of these fiber builds
without support from the Federal Universal Service Fund (the
``Fund'').\6\ Accordingly, if the temporary caps recommended by the
Joint Board are adopted by the Commission, Comspan's expansion plans
will be stopped in their tracks, and citizens in Oregon's underserved
communities will be denied precisely those benefits and services that
the Act was intended to promote.
---------------------------------------------------------------------------
\6\ Comspan is also certified to and does receive support from the
Oregon Universal Service Fund.
---------------------------------------------------------------------------
It is a fundamental premise of the Act that competition and
Universal Service are mutually supportive and reinforcing goals.\7\
With this understanding, the Commission has held ``competitive
neutrality'' as a guiding principle in implementing Universal Service.
In the face of the pressure of a growing Fund, the Joint Board is now
asking the Commission to abandon the principle of competitive
neutrality by adopting caps that favor the incumbent local exchange
carriers and are likely to put many CETCs out of business.
---------------------------------------------------------------------------
\7\ In the Matter of Implementation of the Local Competition
Provisions of the Telecommunications Act of 1996, CC Docket No. 96-98,
First Report and Order, 11 FCC Rcd 15499, (rel. August 8, 1996)
(``Local Competition First Report and Order''), 4.
---------------------------------------------------------------------------
Comspan recognizes that the Fund is growing at an unsustainable
pace and that reform is necessary. However, wireline broadband CETCs
such as Comspan are the solution--not the problem. These carriers are
serving high-cost communities in efficient and effective manners. If
the FCC adopts a permanent solution that eliminates carriers such as
Comspan from the marketplace--if the FCC denies carriers such as
Comspan equal access to the same high-cost support as is available to
the incumbents--it will have sacrificed the goals of the Act in order
to achieve a quick, and ultimately ineffective, fix.
Comspan therefore urges the Commission to reject the Joint Board's
proposed caps and instead act to adopt mechanisms for reforming the
Universal Service that preserve the ability of CETCs to continue to
draw support from the Fund on the same terms as the ILECs, and by so
doing, to continue to encourage the provision of advanced services to
all citizens.
II. ComspanUSA
A. History of the Company
Comspan is a wireline competitive local exchange carrier
headquartered in Roseburg, Oregon--a small town in southern Oregon.
Comspan was formed in 2002 by a group of local business people intent
on providing a competitive alternative to the incumbent local exchange
carrier, Qwest Communications (``Qwest''). Five years later, Comspan
provides local exchange and long distance service to a significant
percentage of the households in Roseburg, and in the neighboring
communities of Sutherlin and Winston as well.
Based on its experience in Roseburg, Comspan became convinced that
it could offer advanced telecommunications services to Oregonians
living in small towns throughout the state, and that it could offer
these services at affordable prices. In order to realize its plan,
Comspan teamed up with the LTS Group of Companies (``LTS''), which
serve the telecommunications, utilities, and industrial sectors in
Canada and the United States. LTS's network development arm specializes
in system designs and development of ``triple play'' networks,
delivering voice, data, and television services. Together, the two
companies have embarked on an ambitious plan to construct, deploy and
manage FTTH networks in small towns and rural areas throughout Oregon.
LTS has since purchased Comspan, lending the company LTS's significant
financial strength and technical expertise.
B. Bandon and Coquille
After some preliminary market research, Comspan chose to deploy its
first FTTH network in Bandon, Oregon. Bandon is a town with a
population of approximately 3,100 residents located on the Southern
Oregon coast, and Comspan's preliminary market research revealed that
it was an underserved area. Although the local ILEC did advertise DSL
services, Comspan received reports that approximately 50 percent of the
households lived too far from the ILEC central office to be eligible
for DSL. And the local cable company made it known that it had no plans
to upgrade its network to allow it to offer broadband services to
Bandon for another 20 years.\8\ For these reasons, Comspan determined
that Bandon was a perfect spot to test its market strategy.
---------------------------------------------------------------------------
\8\ Since that time, the cable company is now estimating it will be
in a position to provide broadband services in 3, not 20, years.
---------------------------------------------------------------------------
Comspan broke ground on the project in February 2006, and turned up
its first customer in August 2006. The Bandon network is built around a
central office and video head-end located in Bandon, connected to
approximately 90 percent of the households in Bandon via Comspan's
passive optical network (``PON''). Over this state-of-the-art
architecture, Comspan offers Bandon's citizens not only basic local
exchange and long distance service, but high-speed data \9\ and video
as well. And Bandon's citizens have welcomed Comspan's services with
open arms. In less than a year, Comspan now serves a full 35 percent of
the households in Bandon, and is gaining new customers every day. The
company expects to achieve a 50 percent market share by mid summer and
a 65 percent market share within 2 years.
---------------------------------------------------------------------------
\9\ Comspan's network offers commercial data speeds of up to 7
mbps, with technical capabilities of 100 mbps.
---------------------------------------------------------------------------
Once the network in Bandon was completed, Comspan immediately began
building in Coquille--a slightly larger town of approximately 5,000,
located about 17 miles away. Like Bandon, Coquille residents had few
choices when it came to broadband services. The local ILEC offers DSL
but only to those households close in to the central office, while the
local cable company neither offers nor has plans to offer broadband
services in the foreseeable future. It is not surprising, then, that
Comspan has had remarkable success ``preselling'' its services in
Coquille. The company expects to turn up its first customers in
Coquille this month.
Based upon its success in Bandon and Coquille, in the next 12
months Comspan is planning to begin building FTTH networks in an
additional 10 small towns located across the state.
C. The Role of Universal Service Funding in Comspan's Plans
Small towns like Bandon and Coquille are significantly less dense
than mid-to-large cities, and are therefore costlier to serve.
Moreover, because the customer pool is small, it is impossible to
achieve the same economies of scale associated with cities with larger
populations. Thus, from the beginning, Comspan has depended on
anticipated support from the state and Federal Universal Service funds
in order to build its FTTH networks. Accordingly, Comspan applied for
and received Federal ETC status in Bandon and Coquille in order to use
the relatively modest, but not insignificant, funding to help to pay
for the infrastructure essential for the delivery of basic voice
services in those communities. It has also applied for ETC status in
the nearby communities of Reedsport, Veneta, Myrtle Creek and Oakridge,
and will file additional applications as it prepares to build-out
additional cities.
The continued availability of Fund support is critical to Comspan's
ability to deliver its advanced services to underserved communities
throughout Oregon. Indeed, if Universal Service funding becomes
unavailable to Comspan, or if it is significantly diminished from
current levels, Comspan will be unable to complete its expansion plans
beyond those communities it is currently serving. The elimination of
CETCs such as Comspan--who are providing advanced broadband services--
would constitute a real loss to consumers in small towns and rural
communities who will otherwise have only limited (if any) access to
broadband. Indeed, wireline broadband CETCs like Comspan, more than
those of any other class of ETC, serve the goals of the Act and should
be ensured continued Fund support:
First, Comspan is bringing new technologies to small towns
and rural areas. The Act specifically declares: ``Access to
advanced telecommunications and information services should be
provided in all regions of the Nation.'' \10\ By providing
state-of-the-art, fiber-based voice, video and high-speed data,
Comspan is doing precisely that--and importantly, Comspan is
delivering these new technologies in areas of the country that
would not otherwise receive these services. And the benefits of
these services can make a remarkable difference in these
communities. The availability of true broadband brings with it
opportunities for advances in healthcare through telemedicine
applications, educational opportunities through e-learning
applications, and economic development.
---------------------------------------------------------------------------
\10\ 47 U.S.C. 254(b).
Second, Comspan encourages competition in small towns and
rural areas. In adopting the Act, Congress did not call for a
two-tier society that promotes competition in large urban
markets, while monopolies retain their grasp on Americans
living in small towns. On the contrary, Congress envisioned
that all Americans would reap the benefits of competition in
local telecommunications markets. Comspan is fulfilling the
---------------------------------------------------------------------------
Act's vision of competition for rural Americans.
Third, Comspan services compete head-to-head with and serve
as complete substitutes for ILEC services. That is, when a
consumer purchases Comspan service, that consumer will drop the
ILEC service. Thus, the support provided to CETCs such as
Comspan would not cause the Fund to increase at all if the
current system did not provide continued support to the ILEC
even after the ILEC loses the customer.
III. The Joint Board's Proposed Caps
The Joint Board's proposal to cap high-cost support to CETCs
represents an extreme and unwarranted departure from the Commission's
principle of competitive neutrality in the implementation of Universal
Service, and should therefore be rejected.
A. The Proposed Caps Violate the Act's Principle of Competitive
Neutrality and Thereby Subvert the Act's Pro-Competitive Goals
The Act expressly rejects the previously-held belief that
telecommunications services are natural monopolies, best delivered by a
single incumbent carrier.\11\ In drafting the Act, Congress instead
offered the vision of a vibrant marketplace in which carriers compete
with one another to bring to customers the latest technological
innovations at the lowest cost. And while Universal Service remains an
equally important goal, it was never intended to be furthered at the
cost of competition. On the contrary, competition and new technologies
were expected to further the goals of Universal Service as they would
``greatly reduce the actual costs of providing Universal Service over
time.'' \12\
---------------------------------------------------------------------------
\11\ Local Competition First Report and Order, 1.
\12\ Telecommunications Competition, S. Rep. No. 104-23 at 26
(1996).
---------------------------------------------------------------------------
In implementing the Act, the Commission has remained true to this
vision. In its First Report and Order,\13\ the Commission declared
``competitive neutrality'' a ``guiding principle'' for the preservation
and advancement of Universal Service. The Commission stated:
---------------------------------------------------------------------------
\13\ Federal-State Joint Board on Universal Service, CC Docket No.
96-45, Report and Order, 12 FCC Rcd 8776 (rel. May 8, 1997) (``First
Report and Order'').
``Universal Service support mechanisms and rules should be
competitively neutral. In this context, competitive neutrality
means that Universal Service support mechanisms and rules
neither unfairly favor nor disfavor one provider over another
and neither unfairly favor one technology over another.'' \14\
---------------------------------------------------------------------------
\14\ First Report and Order, 46-47.
The Commission not only adopted competitive neutrality as ``an
additional principle'' under 254(b), but it also found the principle to
be embodied in several of the Act's explicit requirements--including
254(e)'s requirement that Universal Service support be explicit,
section 254's requirement that state Universal Service contributions be
equitable and nondiscriminatory, and section 214(e)'s requirement that
any carrier can become an eligible telecommunications carrier if it
meets certain statutory criteria.\15\ Accordingly, the Commission found
that ``an explicit recognition of competitive neutrality in the
collection and distribution of funds and the determination of
eligibility in universal support mechanisms is consistent with
Congressional intent and necessary to promote a `pro-competitive,
deregulatory national policy framework.' '' \16\
---------------------------------------------------------------------------
\15\ The Commission also noted that section 254(h)(c) requires the
Commission to establish competitively neutral rules relating to
advanced telecommunications and information services for eligible
schools, healthcare providers and libraries. Id. 48.
\16\ Id. 48.
---------------------------------------------------------------------------
The Commission certainly recognized that strict adherence to the
principle of competitive neutrality would be difficult to achieve, even
suggesting that there would be times when disparities between types of
carriers would exist. However, the implication was that these
disparities would be small and would exist only where they could not be
eliminated. The Commission explained:
``Our decisions here are intended to minimize departures from
competitive neutrality, so as to facilitate a market-based
process whereby each user comes to be served by the most
efficient technology and carrier. We conclude that
competitively neutral rules will ensure that such disparities
are minimized so that no entity receives an unfair competitive
advantage that may skew the market place or inhibit competition
by limiting the available quantity of services or restricting
the entry of potential service providers.'' \17\
---------------------------------------------------------------------------
\17\ Id.
In contrast, the Joint Board's recommended caps are like throwing a
hand grenade at a kidnapper. You may stop the kidnapper, but at too
great a cost. Similarly, the caps may halt the growth of the fund, but
they are also likely to inflict severe damage on CETCs such as Comspan.
And, in so doing, they will subvert the Act's pro-competitive goals.
B. The Proposed Caps Are Likely to Drastically Reduce the Amount of
Support Available to CETCs Such as Comspan
The Joint Board proposes to cap total support to CETCs, by state,
at the amount distributed in 2006. So, as the number of lines served by
CETCs grows in any state, the amount of per-line support will decrease.
It is impossible for Comspan to calculate with precision how much the
caps may reduce the support available to it in Oregon. That said,
Comspan has analyzed publicly available information in order to make a
good faith estimate. The results are alarming.
According to the Universal Service Administrative Company
(``USAC''), Oregon CETCs were the recipients of approximately $10
million in high-cost support in 2006.\18\ However, two new carriers--
Cingular and Eagle Telephone--were certified by the Public Utility
Commission of Oregon (``OPUC'') in late 2006 and early 2007; \19\ in
that same time period, Comspan received ETC certification in two new
wire centers in the state.\20\ In forecasts provided to USAC, Oregon
CETCs have projected that by the third quarter of 2007 they will
receive over double the amount received by CETCs in 2006, assuming
current support levels.\21\ In other words, Oregon CETCs are projecting
that they will more than double their number of lines over the first
three quarters of 2007. If the caps are adopted and the total amount
distributed remains constant, then the per-line support received by the
CETCs in Oregon will be less than half of what it is now. And if
history is any predictor, the disparity will continue to grow as these
CETCs gain a foothold in the high-cost markets.
---------------------------------------------------------------------------
\18\ Recommended Decision, Appendix B.
\19\ Eagle Telephone received ETC certification in Oregon on
December 21, 2006. See In the Matter of Eagle Telephone Systems, Inc.,
Application for Designation as an Eligible Telecommunications Carrier,
OPUC Docket UM 1237, Order No. 06-680. Cingular received ETC
certification in Oregon on March 29, 2007. See, In the Matter of
Cingular Wireless, LLC, Application for Designation as an Eligible
Telecommunications Carrier, OPUC Docket UM 1253, Order No. 07-111.
\20\ See In the Matter of Wantel Inc.'s Application for Designation
as an Eligible Telecommunications Carrier in the Bandon Wire Center,
OPUC Docket UM 1255, Order No. 06-681 (Dec. 21, 2006); see also In the
Matter of Wantel Inc.'s Application for Designation as an Eligible
Telecommunications Carrier in the Coquille Wire Center, OPUC Docket UM
1307, Order No. 07-210 (May 29, 2007).
\21\ CETC forecasts are found on the USAC website as HC01. The
CETCs listed for Oregon (not including Sprint Spectrum, which has not
even applied for CETC status as of this date) forecast that, under
current support levels, they will receive over $22 million in USF
support.
---------------------------------------------------------------------------
As discussed above, a significant level of support is necessary in
order for Comspan to fund the substantial initial cash outlay required
for building its FTTH infrastructure in new markets. Comspan's decision
to enter new markets depends on the availability of that support.
Comspan certainly cannot sustain its business plan with the cuts in
support that these estimates suggest.
Moreover, even if the amount of funding under the caps were
sufficient to allow Comspan to move forward, the market would be tilted
more steeply against it. Competitive local exchange carriers always
face an uphill battle, as they compete against ILECs who enjoy all of
the advantages of incumbency. If, in addition to all of the natural
advantages, the incumbent LECs were also entitled to twice as much USF
support than the CETCs, then Comspan's ability to compete will be
burdened further.
The Joint Board has attempted to minimize the harm that its
proposed caps might produce by pointing out that the caps are intended
to be temporary.\22\ However, in view of the complexity of the issues
involved, it seems unlikely that the Commission will have lifted them
in favor of permanent mechanisms within the 18 months projected in the
Recommended Decision. Given what would be an at-best uncertain
situation, it is reasonable to imagine that, if the caps are adopted,
many CETCs will either halt their expansion plans, as projected by
Comspan, or exit high-cost markets altogether.
---------------------------------------------------------------------------
\22\ Recommended Decision, 8.
---------------------------------------------------------------------------
C. Customers Will Lose if the CETCs Are Eliminated
It should be abundantly clear that competition in high-cost areas
is good for consumers. Competitive ETCs such as Comspan are bringing a
variety of advanced services to underserved areas--thereby introducing
new technology and innovative services to customers who would otherwise
have no such access. Moreover, Comspan's own experience in Bandon
illustrates just how effective competition can be, even in rural areas,
at spurring the incumbent LECs and cable companies to upgrade their own
networks. As mentioned above, before Comspan announced its intention to
enter the Bandon market, the local cable provider had no intention of
upgrading its facilities to allow it to offer broadband services for
twenty years. After having lost significant market share to a
competitor, that same company is now estimating that it will be able to
provide Bandon with cable modem services in 3 years.
If the Commission adopts the caps proposed by the Joint Board in
its Recommended Decision, Comspan and other CETC's like Comspan will be
damaged. However, the real losers will be the customers in those Oregon
communities that Comspan plans to serve--customers who now have a
chance to enjoy the same technological advantages as customers in
larger cities--who instead will have to wait up to 20 years to come
into the 21st century.
IV. Conclusion
Comspan appreciates this opportunity to comment on the Recommended
Decision and looks forward to providing additional comments in the
future.
Respectfully submitted this 6th day of June, 2007.
McDowell & Rackner PC,
Lisa F. Rackner,
Counsel for ComspanUSA.
______
Prepared Statement of the National Association of State Utility
Consumer Advocates (NASUCA)
NASUCA Supports a Cap on the High-Cost Universal Service Fund
The National Association of State Utility Consumer Advocates
submits for the record of this Committee's hearing scheduled for June
12, 2006, the attached copy of comments filed at the Federal
Communications Commission on June 6, 2007, regarding the proposal of
the Federal-State Joint Board on Universal Service for a cap on the
Federal high-cost fund as it applies to competitive eligible
telecommunications carriers, including wireless carriers.
______
Before The Federal Communications Commission
Washington, DC 20554
June 6, 2007
In the Matter of High-Cost Universal Service Support
Federal-State Joint Board on Universal Service
WC Docket No. 05-337
CC Docket No. 96-45
Comments of the National Association of State Utility Consumer
Advocates Supporting a Cap on the High-cost Universal Service
Fund
Table of Contents
I. Introduction and Summary
II. The Joint Board Recommendation and Issues for Comment
III. Capping the Fund as an Interim Step Is Necessary
IV. Applying the Cap Only to CETCs Is Reasonable
V. The Proposed Period for the Cap Is Reasonable
VI. The Cap Should Apply on a State-by-state Basis
VII. The Cap Should Be at the Level of Support Awarded in 2006
VIII. A Cap on the Entire High-cost Fund Would Be Feasible
IX. Conclusion
I. Introduction and Summary
The National Association of State Utility Consumer Advocates
(``NASUCA'') \1\ files these comments to support the recommendation of
the Federal-State Joint Board on Universal Service (``Joint Board'')
that the Federal Communications Commission (``Commission'' or ``FCC'')
take immediate action to impose an interim, emergency cap on the amount
of high-cost support that competitive eligible telecommunications
carriers (``CETCs'') may receive.\2\ This is necessary, in the Joint
Board's words, ``to rein in the explosive growth in high-cost Universal
Service support disbursements.'' \3\ The Commission seeks comment on
the Joint Board's recommendation.\4\
The NPRM is on an extremely tight timeline.\5\ But that is
justified by the ``emergency'' in which the USF finds itself.\6\
Unfortunately, the emergency is, in part, caused by the failure of the
Commission and of the Joint Board to act in a coordinated fashion on
many of the issues that have previously been put out for comment.\7\
But that does not alleviate the need for a cap on the high-cost
Universal Service Fund (``USF'') like that recommended by the Joint
Board.
II. The Joint Board Recommendation and Issues for Comment
The Joint Board recommended that the Commission cap the amount of
support that CETCs may receive for each state based on the average
level of CETC support distributed in that state in 2006.\8\ The Joint
Board further recommended that the interim cap apply until 1 year from
the date that the Joint Board makes its recommendation regarding
comprehensive and fundamental high-cost Universal Service reform.\9\
The Commission seeks comment on the Joint Board's
recommendations.\10\ The Commission asks commenters to ``address
whether the Commission should control the growth of high-cost support
by capping support on CETCs as recommended by the Joint Board.'' \11\
The Commission also asks ``parties to address the Joint Board's
recommendation to limit the cap to CETCs only, and whether there are
public interest concerns that warrant modifying the application of the
recommendation to providers of certain services.'' \12\
The Commission also asks for comment on the Joint Board's
recommendations regarding the ``operation of any interim cap, including
the duration of the cap, its application, and the base period for the
cap.'' \13\ The Joint Board had recommended that the duration of the
cap be 1 year from the date of any Joint Board recommended decision on
comprehensive Universal Service reform, which the Joint Board committed
to issue within 6 months of May 1, 2007.\14\ The Commission also seeks
comment ``on the Joint Board's recommendation to impose the cap on a
state-by-state basis . . .'' \15\ The Joint Board had recommended that
the cap be set at the level of support received by CETCs in 2006 . .
.'' \16\
III. Capping the Fund as an Interim Step Is Necessary
The Joint Board presents more-than-adequate justification for
placing an emergency cap on the fund:
High-cost support has been rapidly increasing in recent years
and, without immediate action to restrain growth in competitive
ETC funding, the Federal Universal Service Fund is in dire
jeopardy of becoming unsustainable. Today, the Universal
Service Fund provides approximately $4 billion per year in
high-cost support. Yet, in 2001, high-cost support totaled
approximately $2.6 billion. In recent years, this growth has
been due to increased support provided to competitive ETCs
which receive high-cost support based on the per-line support
that the incumbent local exchange carriers (LECs) receive
rather than the competitive ETC's own costs. While support to
incumbent LECs has been flat or even declined since 2003, by
contrast, in the 6 years from 2001 through 2006, competitive
ETC support grew from $15 million to almost $1 billion--an
annual growth rate of over 100 percent. Based on current
estimates, competitive ETC support in 2007 will reach at least
$1.28 billion if the Commission takes no action to curtail this
growth. Moreover, if the Commission were now to approve all
competitive ETC petitions currently pending before the
Commission, high-cost support for competitive ETCs could rise
to as much as $1.56 billion in 2007. High-cost support to
competitive ETCs is estimated to grow to almost $2 billion in
2008 and $2.5 billion in 2009 even without additional
competitive ETC designations in 2008 and 2009.\17\
The impact on consumers across the Nation of this growth in the
Fund is substantial. The current USF contribution factor is 11.7
percent.\18\ All other things being equal, if the disbursements to
CETCs grew to the cited $1.56 billion for 2007, the contribution factor
would grow to 11.9 percent.\19\ The Joint Board's estimate does not
take into account all of the CETC designations pending in the various
states,\20\ which likely outweigh those pending at the Commission.
Consumers cannot be asked to bear this burden.
IV. Applying the Cap Only to CETCs Is Reasonable
As quoted above, the Joint Board correctly notes that in recent
years the growth in the Fund is almost entirely attributable to CETCs:
``While support to incumbent LECs has been flat or even declined since
2003, by contrast, in the 6 years from 2001 through 2006, competitive
ETC support grew from $15 million to almost $1 billion--an annual
growth rate of over 100 percent.'' \21\ Therefore, the most direct way
to deal with the growth in the Fund as an interim measure is to limit
the source of growth: CETCs.
We are likely to hear, and we have already heard, from those who
would be impacted--namely wireless carriers--that capping the Fund for
CETCs is not competitively neutral.\22\ We have also heard that capping
the Fund for CETCs would discourage wireless carriers' deployment of
services in rural areas.\23\
With regard to the first point, it should first be recalled that
the principle of competitive neutrality is not found in Section 254. It
was derived by the Commission based on its ability to adopt
``additional principles'' pursuant to 47 U.S.C. 254(b)(7).\24\
Depending on the context, one principle may be important enough to
trump any or all the other principles.\25\ In this situation, the need
for ``specific, predictable and sufficient'' support \26\ can override
the derived principle of competitive neutrality. As the Joint Board has
found, ``sufficient'' also implies ``no more than sufficient.'' \27\
Further, incumbent LECs have had their support from the high-cost loop
fund capped since the 1990s. Thus additional support for CETCs can be
put temporarily ``on hold'' without violating the Act.
Likewise, with regard to the second point, while it is likely that
the receipt of Universal Service funds eases wireless carriers'
deployment of services in rural areas, many carriers were and have been
deploying wireless facilities without such support. The impact of a
temporary cap on wireless funding while other USF issues are being
resolved is speculative; the impact on consumers of the increased
funding that will occur without a cap is definite.
The speculative impact of a cap is reinforced by the fact that the
Joint Board recommended that the Commission consider ``abandoning or
modifying'' the so-called identical support or portability rule.\28\
The Joint Board correctly notes that the rule ``seems to be one of the
primary causes of the explosive growth in the fund.'' \29\
Further, as the Joint Board has noted:
Fundamental differences exist between the regulatory treatment
of competitive ETCs and incumbent LECs. For example,
competitive ETCs, unlike incumbent LECs, have no equal access
obligations. Competitive ETCs also are not subject to rate
regulation. In addition, competitive ETCs may not have the same
carrier of last resort obligations that incumbent LECs have.
Furthermore, under the identical support rule, both incumbent
rural LECs and competitive ETCs receive support based on the
incumbent rural LECs' costs. Therefore, incumbent rural LECs'
support is cost-based, while competitive ETCs' support is
not.\30\
For all of these reasons, limiting the cap to CETCs makes sense and
is within the Commission's discretion.\31\
The D.C. Circuit has recently reaffirmed that, with regard to the
Commission's interpretation of Section 254, where Congress has not
spoken directly to an issue (as it has not here), the ultimate test is
whether the Commission's ruling is reasonable under the
circumstances.\32\ Imposing a temporary cap on CETC funding is, under
these circumstances, eminently reasonable.
V. The Proposed Period for the Cap Is Reasonable
The Joint Board recommends that ``the cap expire 1 year from the
date of any Joint Board recommended decision on comprehensive and
fundamental Universal Service reform.'' \33\ To place a definite outer
limit on when the cap will end, the Joint Board ``commit[s] to adoption
of a further recommended decision addressing fundamental high-cost
reforms within 6 months of today's Recommended Decision.'' \34\ Taken
together, this means that the cap will expire within 18 months of May
1, 2007, the day the Recommended Decision was released, in other words
November 1, 2008.
The entire premise behind the cap is that it is to be interim,
``until such measures can be adopted that will ensure that the Fund
will be sustainable for future years'' and ``while the Joint Board and
the Commission consider fundamental reforms to address issues related
to the distribution of support.'' \35\ It appears that another 18
months to resolve issues, some of which have been pending since the
passage of the 1996 Act, is sufficient (and probably not more than
sufficient).\36\ Clearly, though, the Commission should attempt to
resolve these issues even more expeditiously, after giving the
stakeholders an adequate opportunity to present their views.
VI. The Cap Should Apply on a State-by-State Basis
The Joint Board ``recommend[s] that the Commission immediately
impose a cap on competitive ETC support for each state.'' \37\ The
Joint Board further notes ``that a competitive ETC cap applied at a
state level effectively curbs growth. . . .'' \38\ NASUCA agrees. A
state-by-state cap means that no state will receive less support for
CETCs than it currently receives, no matter what happens in other
states.
The appropriateness of a state-by-state cap is best seen by
comparison to other possibilities. The Joint Board states that it:
considered, but declined to recommend, capping competitive ETC
support nationwide or by study area. A nationwide cap amount
would maintain incentives for states to designate additional
competitive ETCs to increase their share of competitive ETC
capped support and would result in competitive ETC support
shifting to those states that aggressively designate
competitive ETCs during the period of the interim cap.\39\ A
cap by study area would foreclose the possibility of support
for the duration of the cap for those study areas that
currently have no competitive ETCs and would be
administratively burdensome.\40\
NASUCA agrees with the Joint Board's assessment of the problems
with using a national cap and with using a study area (or smaller)
area.\41\ Placing the cap per state also keeps the responsibility with
state commissions, which under the Act have primary responsibility for
designation of ETCs.\42\
VII. The Cap Should Be at the Level of Support Awarded in 2006
The Joint Board ``recommend[s] that the Commission cap competitive
ETC support for each state at the level of competitive ETC support
actually distributed in that state in 2006.'' \43\ The Joint Board
correctly points out that ``using 2006 data allows the Commission to
use actual support amounts, rather than relying on USAC projections to
set the cap amounts.'' \44\ NASUCA agrees with this approach.
If the Commission orders a cap as expeditiously as appears may
happen,\45\ more recent data--for 2007--will be limited to the first,
second and possibly (but hopefully not) third quarters of the year.
That data will not be representative: As the Joint Board points out,
there are ``seasonal or one-time fluctuations that may be reflected in
any single quarter.'' \46\ Using actual data for the year 2006 will
``smooth out'' these fluctuations.\47\
Using the 2006 data does not capture the increases in CETC support
that have occurred in the past year. But that increase is part of the
problem, of course: Comparing USAC's HC01 appendices for the second
quarter of 2007 to the second quarter of 2006 shows an increase of 24
percent in total CETC support just in that 1 year.\48\ And comparing
the first quarter of 2007 to the first quarter of 2006 shows an
increase of 37 percent in total CETC support.\49\ The composite
increase (comparing both quarters in 2006 to both quarters in 2007) is
almost 30 percent. If there is a compulsion to ``true up'' the 2006
numbers, an increase of 30 percent could be applied. Truth be told, any
cap is better than no cap; consumers will suffer if the increases in
the high-cost fund are allowed to continue.
VIII. A Cap on the Entire High-Cost Fund Would Be Feasible
The Joint Board did ``not recommend additional caps on support
provided to incumbent LECs, because the data show less growth pressure
from incumbent LECs.'' \50\ This is largely because ``incumbent LEC
high-cost loop support is already capped and incumbent interstate
access support has a targeted limit'' while ``local switching support
and interstate common line support provided to incumbent LECs have been
stable in recent years.'' \51\ As stated above, NASUCA agrees with the
limitation of the cap to only CETCs; any lack of competitive neutrality
is offset by the benefits to the public interest.
If, however, the Commission insists on maintaining competitive
neutrality, then the cap could be applied to the entire high-cost
fund.\52\ NASUCA proposed such a cap in an April 6, 2007 ex parte
letter.
The cap would work just like the CETC cap, but would also cover
incumbent LEC ETCs. To paraphrase the description in the Recommended
Decision:
First, on a quarterly basis, the Universal Service
Administrative Company (``USAC'') would calculate the support
each ETC would have received under the existing (uncapped)
equal per-line support rule and would sum these amounts by
state. Second, USAC would calculate a state reduction factor to
reduce this amount to the ETC cap. Specifically, USAC would
compare the total amount of uncapped support to the cap amount
for each state. Where the total state uncapped support is
greater than the available state cap support amount, USAC would
divide the state cap support amount by the total state uncapped
amount to yield the state reduction factor. USAC would then
apply the state-specific reduction factor to the uncapped
amount for each ETC within the state to arrive at the capped
level of high-cost support. Where the state uncapped support is
less than the available state capped support amount, no
reduction would be required.\53\
The example used by the Joint Board also applies:
If in State A, the capped amount is $90 million and the total
uncapped support is $130 million, the reduction factor would be
69.2 percent ($90/$130). In State A, each ETC's support would
be multiplied by 69.2 percent to reduce support to the capped
amount. If in State B, however, the base period capped amount
is $100 million and the total uncapped support is $95 million,
there would be no reduction factor because the uncapped amount
is less than the capped amount. Each quarter, for the duration
of the cap, a new reduction factor would be calculated for each
state.\54\
A state-by-state cap on all high-cost payments should also have a
one-year duration and should also use actual 2006 payments as the
amount of the cap.
IX. Conclusion
The Commission cannot stand by as consumers continue to pay ever-
increasing amounts into the USF while the Commission figures out ways
to constrain the growth in the fund.\55\ A cap on payments to CETCs
will, for the short term, address the ``explosive growth'' in high-cost
support disbursements.
The proposed cap is reasonable because the known benefits of such a
cap far exceed the known costs of failing to do so. Under current
rules, there is no assurance that high-cost support for CETCs results
in service deployment that would not have been made without such
support. There is also no assurance that the current amount of support
(over $1 billion annually and rapidly growing) is subsidizing
investments that will not generate substantial profits in future years.
Moreover, under current rules, there is no assurance that the amount of
support is reasonable given that it is based on the costs of wireline
carriers rather than the costs of wireless carriers. Therefore, until
the Commission has an opportunity to reform the current funding
mechanism, it would be prudent to adopt the recommended cap as an
immediate interim measure, and thereby limit the risk that public
support is being converted to private profits through the high-cost
support mechanism.
The Commission should expeditiously adopt the proposal of the Joint
Board.
Respectfully submitted,
David C. Bergmann,
Assistant Consumers' Counsel Chair,
NASUCA Telecommunications Committee,
NASUCA.
Endnotes
\1\ NASUCA is a voluntary, national association of consumer
advocates in more than forty states and the District of Columbia,
organized in 1979. NASUCA's members are designated by the laws of their
respective states to represent the interests of utility consumers
before state and Federal regulators and in the courts. See, e.g., Ohio
Rev. Code Chapter 4911; 71 Pa. Cons. Stat. Ann. 309-4(a); Md. Pub.
Util. Code Ann. 2-205(b); Minn. Stat. Ann. Subdiv. 6; D.C. Code Ann.
34-804(d). Members operate independently from state utility
commissions, as advocates primarily for residential ratepayers. Some
NASUCA member offices are separately established advocate organizations
while others are divisions of larger state agencies (e.g., the state
Attorney General's office). Associate and affiliate NASUCA members also
serve utility consumers, but have not been created by state law or do
not have statewide authority.
\2\ Federal-State Joint Board on Universal Service, WC Docket No.
05-337, CC Docket No. 96-45, Recommended Decision, FCC 07J-1 (rel. May
1, 2007) (``Recommended Decision'').
\3\ Recommended Decision, 1.
\4\ Notice of Propose Rulemaking, FCC 07-88 (rel. May 14, 2007)
(``NPRM'').
\5\ Comments are due 7 days after Federal Register publication, and
replies are due fourteen days after publication. See NPRM, 6.
\6\ Id., 1; see Recommended Decision, 4.
\7\ See Comments of the National Association of State Utility
Consumer Advocates on ``Long-Term, Comprehensive High-Cost Universal
Service Reform,'' in WC Docket No. 05-337 (May 31, 2007) at 3-5.
\8\ Recommended Decision, 5-13.
\9\ Id., 8.
\10\ NPRM, 5.
\11\ Id.
\12\ Id.
\13\ Id.
\14\ Recommended Decision, 8.
\15\ NPRM, 5.
\16\ Recommended Decision, 13.
\17\ Recommended Decision, 4 (footnotes omitted).
\18\ http://hraunfoss.fcc.gov/edocs_public/attachmatch/DA-07-
1330A1.pdf.
\19\ Adding one-quarter of the $0.28 billion increase to the Fund
need for the second quarter of 2007.
\20\ Recommended Decision, n. 15.
\21\ Id., 4.
\22\ See http://www.ctia.org/media/press/body.cfm/prid/1689.
\23\ See In the Matter of Inquiry Concerning the Deployment of
Advanced Telecommunications Capability to All Americans in a Reasonable
and Timely Fashion, and Possible Steps to Accelerate Such Deployment
Pursuant to Section 706 of the Telecommunications Act of 1996, GN
Docket N. 07-45, Comments of CTIA--The Wireless Association (May 16,
2007) at 16-17.
\24\ See In the Matter of the Federal-State Joint Board on
Universal Service, CC Docket No. 96-45, Report and Order, 12 FCC Rcd
8776 (1997), 48-49.
\25\ Id., 52.
\26\ 47 U.S.C. 254(b)(5).
\27\ See Recommended Decision, FCC 02J-2, 17 FCC Rcd 20716 (2002),
14, 16.
\28\ Recommended Decision, 12.
\29\ Id.
\30\ Id., 6.
\31\ If the Commission decides not to limit the cap to CETCs, a cap
on the entire high-cost fund could be imposed. This is discussed later
in these comments.
\32\ Vonage Holding Corp. v. FCC, __ F.3d.1 __, Case 06-1276 (D.C.
Cir. 2007), slip op. (June 1, 2007) at 12, citing Am. Fed'n of Gov't
Employees, Local 446 v. Nicholson, 475 F.3d 341, 355 (D.C. Cir. 2007).
\33\ Id., 8.
\34\ Id.
\35\ Id., 5.
\36\ The issues at issue should not be just those that were
identified in the May 1, 2007 Public Notice (FCC 07J-2). See NASUCA's
comments filed May 31, 2007 in response to that Public Notice.
\37\ Id., 9.
\38\ Id. The Joint Board also states that this ``allows states some
flexibility to direct competitive ETC support to the areas in the state
that are most in need of support.'' Id. It appears that this
``flexibility'' would be limited to authorizing new ETCs in some areas;
states would not (and should not) have the ability to reallocate
support among currently authorized ETCs.
\39\ Just as some states have designated multiple ETCs under the
current system. See id., 5, n. 17 and Appendix B.
\40\ Id.
\41\ USAC's latest quarterly filings show 2,274 study areas
nationwide. Although not all of those study areas receive high-cost
support, and although not all of those study areas have CETCs
authorized, the burden on the states and on the Commission would be a
distraction from the fundamental purpose here, which is to develop
long-term reforms for the high-cost support mechanism.
\42\ 47 U.S.C. 214(e)(2). Under 47 U.S.C. 214(e)(6), the Commission
has this authority when a state commission cannot designate ETCs. The
Joint Board recommendation does not explain the interaction of Federal
and state authority to utilize the ``flexibility'' under the cap, but
one would hope that the Commission would exercise the same restraint
that the Joint Board expects of the states.
\43\ Recommended Decision, 13.
\44\ Id.
\45\ See NPRM, 6.
\46\ Recommended Decision, 13, citing the fact that, for example,
the annual true-up of interstate common line support (``ICLS'') occurs
in the third and fourth quarters, but not in the first and second
quarters.
\47\ Id.
\48\ From the 2Q06 figure of $259 million to the 2Q07 figure of
$321 million.
\49\ From the 1Q06 figure of $219 million to the 1Q07 figure of
$299 million.
\50\ Id., 5.
\51\ Id.
\52\ The issues being dealt with here are issues with the high-cost
fund. Thus the Commission need not consider, at this juncture, a cap
for the other pieces of the USF (schools and libraries, low-income and
rural telemedicine).
\53\ See id., 10.
\54\ See id., 11. The Joint Board's example includes the notation
that ``if in State C the base period capped amount is $0 (i.e., there
were no competitive ETCs receiving support in State C as of when the
cap was established), then no competitive ETCs would be eligible to
receive support in that state.'' Id. The only jurisdiction that
receives no high-cost support at all is the District of Columbia; under
a total cap, no carrier in the District would be able to receive any
high-cost support as long as the cap lasts.
\55\ See footnote 33, supra.
______
Response to Written Questions Submitted by Hon. Daniel K. Inouye to
Hon. Deborah Taylor Tate
Question 1. The Joint Board recommendation for a cap on funds
available to competitive carriers is designed to be a short-term fix
for the growth in Universal Service demand. In order to ensure the
long-term stability of Universal Service, what specific further reforms
do you favor?
Answer. As we look to achieve the long-term goals of the Universal
Service program we must recognize how technological changes are putting
strains on the mechanics of both our contribution and distribution
systems. With respect to the contribution mechanism, I believe that a
numbers-based contribution mechanism would help maintain the stability
of the Fund by assessing all technologies used to make a phone call on
a similar basis and, unlike the current revenue-based system which
treats technologies differently, would be competitively and
technologically neutral. With respect to the distribution mechanism, I
generally support proposals that allow carriers to receive support
based on their own costs. In particular, along with the Joint Board, I
support the elimination of the identical support rule. I further
believe we should review whether the use of reverse auctions is an
effective and competitively neutral way to determine high-cost
Universal Service funding to Eligible Telecommunications Carriers
(ETCs). Like you, I want to help insure no area or group of our
citizens are left behind.
Question 2. The Joint Board recommends that Universal Service funds
for competitive carriers be capped on a state-by-state basis. But the
recommendation omits any mention of tribal lands. In light of special
jurisdictional concerns involving Indian country, how should the FCC
apply the cap to tribal lands?
Answer. Any interim cap order adopted by the Commission will
continue the Commission's traditional recognition that underserved
tribal lands and Alaska Native Regions are uniquely situated and
deserving of individual treatment to ensure that they are not left
behind urban areas of the country.
Question 3. In order to preserve the sovereignty of the tribes,
would it be best to address support for competitive carriers serving
tribal lands on a case-by-case basis?
Answer. Whatever effective mechanism is adopted, a fundamental
reform plan will ensure that the Universal Service Fund promotes the
availability of reasonably comparable services at reasonably comparable
rates throughout the country in a technologically and competitively
neutral manner. Comprehensive reform also must take into account those
areas of our country which are uniquely situated. Any comprehensive
reform plan will continue the Commission's traditional recognition that
underserved tribal lands including those in Hawaii and Alaska Native
Regions are uniquely situated and deserving of individual treatment to
ensure that they are not left behind urban areas of the country.
Question 4. The Joint Board characterizes its proposal for a cap on
support for competitive carriers as interim, while it considers options
for long-term reform. In the long term, do you believe the Universal
Service Fund should support both wireline and wireless technologies?
Answer. I believe the Universal Service Fund should be administered
in a competitively and technologically neutral manner. All carriers,
regardless of their chosen technology platform, should be eligible to
receive support based on their own costs.
Question 5. In the long term, do you believe that Universal Service
funding should be available to more than one carrier in a geographic
area?
Answer. In many areas defined as high cost by the Commission's
rules, multiple service providers receive Universal Service support.
Indeed, the recent runaway growth of the high-cost fund is largely a
function of subsidizing multiple competitors to provide voice services
in rural areas. I therefore question the wisdom of funding multiple
carriers in high-cost areas in order to ensure the sustainability of
the Fund to serve underserved areas.
Question 6. In 1997, the FCC decided to add to the Universal
Service principles created by Congress a new principle of ``competitive
neutrality.'' Do you believe that the Joint Board recommendation is
consistent with the principle of competitive neutrality?
Answer. Yes. As discussed in the Recommended Decision, the Joint
Board found that adopting an interim cap on high-cost support only for
competitive ETCs would not violate the Commission's Universal Service
principle of competitive neutrality for several reasons:
Fundamental differences exist between the regulatory treatment
of competitive ETCs and incumbent LECs. For example,
competitive ETCs, unlike incumbent LECs, have no equal access
obligations. Competitive ETCs also are not subject to rate
regulation. In addition, competitive ETCs may not have the same
carrier of last resort obligations that incumbent LECs have.
Furthermore, under the identical support rule, both incumbent
rural LECs and competitive ETCs receive support based on the
incumbent rural LECs' costs. Therefore, incumbent rural LECs'
support is cost-based, while competitive ETCs' support is
not.\1\
---------------------------------------------------------------------------
\1\ Federal-State Joint Board on Universal Service, WC Docket No.
05-337, CC Docket No. 96-45, Recommended Decision, FCC 07J-1 (Fed.-
State Jt. Bd., rel. May 1, 2007) (Recommended Decision).
The Joint Board further noted that incumbent LEC high-cost loop
support is already capped and incumbent interstate access support has a
targeted limit.
______
Response to Written Questions Submitted by Hon. Bill Nelson to
Hon. Deborah Taylor Tate
Question 1. The Communications Act, as amended, seems to indicate
that distribution of USF funds should be on a competitively neutral and
nondiscriminatory basis. Do you believe that the proposed interim cap--
which only impacts competitive carriers--comports with Section 254 and
other relevant sections of the Communications Act?
Answer. Yes. As discussed in the Recommended Decision, the Joint
Board found that adopting an interim cap on high-cost support only for
competitive ETCs would not violate the Commission's Universal Service
principle of competitive neutrality for several reasons:
Fundamental differences exist between the regulatory treatment
of competitive ETCs and incumbent LECs. For example,
competitive ETCs, unlike incumbent LECs, have no equal access
obligations. Competitive ETCs also are not subject to rate
regulation. In addition, competitive ETCs may not have the same
carrier of last resort obligations that incumbent LECs have.
Furthermore, under the identical support rule, both incumbent
rural LECs and competitive ETCs receive support based on the
incumbent rural LECs' costs. Therefore, incumbent rural LECs'
support is cost-based, while competitive ETCs' support is
not.\2\
---------------------------------------------------------------------------
\2\ Id.
The Joint Board further noted that incumbent LEC high-cost loop
support is already capped and incumbent interstate access support has a
---------------------------------------------------------------------------
targeted limit.
Question 2. The Joint Board recommendation indicates that the
interim cap on support for competitive carriers should only last for a
maximum of 18 months as the Joint Board and the FCC consider further
USF reform efforts. However, the recommendation does not set a firm
date for expiration of the cap. Would you favor a firm expiration date
as a means of ensuring that the ``interim cap'' does not become a
permanent solution--and that further reform efforts are kept on an
expedited schedule?
Answer. I do not believe that a firm expiration date is necessary.
As the Recommended Decision and its companion Public Notice make clear,
the Joint Board is committed to making further recommendations
regarding comprehensive high-cost Universal Service reform within 6
months of this Recommended Decision. I am committed, as the Federal
Chair, to putting the Joint Board in a position to make those
recommendations. Once the Joint Board issues a Recommended Decision to
the FCC, the Commission is statutorily required to complete its
proceedings responding to the Recommended Decision within 1 year.\3\
---------------------------------------------------------------------------
\3\ 47 U.S.C. 254(a)(2).
Question 3. If an interim cap is not adopted, would the USF
contribution factor increase past its current rate of 11.7 percent? If
so, how high do you think it would go by the second quarter of 2008?
Answer. High-cost Universal Service support has been rapidly
increasing over the past several years, caused primarily by growth in
support for competitive ETCs. Competitive ETC high-cost distributions
have been growing at a trend rate of 101 percent-per-year since 2002.
Specifically, in 2000, competitive ETCs received $1 million in support.
According to USAC, competitive ETCs received almost $1 billion in 2006.
However, we do know, in absence of a cap, that high-cost distributions
will continue to grow with the designation of additional competitive
ETCs and line growth among existing competitive ETCs. Absent the
imposition of a cap, it is very likely that high-cost support to
competitive ETCs will continue to grow. It is difficult, however, to
predict the effect this continued growth in competitive ETC high-cost
support would have on the contribution factor. The contribution factor
is based on expected interstate telecommunications revenues and so the
amount of revenues generated can affect the contribution factor.
Additionally, the contribution factor is based not only on the support
required for the high-cost fund, but support for the other Universal
Service support mechanisms as well. These mechanisms are the schools
and libraries, rural healthcare, and low-income programs. Additionally,
other factors, such as prior period adjustments and changes in interest
income due to interest rate changes, will affect the contribution
factor in a given quarter. Given these other variables, we cannot make
an accurate prediction of the contribution factor based on whether or
not an interim cap on competitive ETC high-cost support is adopted.
Question 4. In your testimony, you note that the Joint Board is
committed to releasing a list of comprehensive reform recommendations
by November 1. Can you give us an update on the specific measures you
are pursuing? What sort of cost savings can we expect from these
recommendations, if implemented?
Answer. The Joint Board held a meeting on July 18, 2007 in New York
City to discuss the comments and reply comments filed in response to
the Joint Board Comprehensive Reform Public Notice. The discussion was
spirited and wide-ranging, and addressed a variety of recommendations
that have been placed before the Joint Board for our consideration. I
look forward to continuing to work with my colleagues on the Joint
Board to narrow the scope of our discussions and focus on specific
measures toward the goal of Fund reform.
I can not at this time estimate the cost savings that would result
from the implementation of some or all of the recommendations currently
under discussion. As stewards of public funds, however, our obligation
to preserve and advance Universal Service mandates that we do all we
can to achieve fundamental reform to ensure that affordable, quality
services are available to consumers all across the country while
ensuring the stability of the Fund itself.
______
Response to Written Questions Submitted by Hon. Frank R. Lautenberg to
Hon. Deborah Taylor Tate
Question 1. New Jersey is the second-largest net donor to the
Universal Service Fund in the country, contributing almost $200
million. Will the Joint Board's proposed interim cap help to reduce
this burden on New Jersey?
Answer. I appreciate your comments regarding New Jersey. My home
State of Tennessee is also a net donor state. High cost Universal
Service support has been rapidly increasing over the past several
years, caused primarily by growth in support for competitive ETCs.
Imposition of an interim cap on high-cost support provided to
competitive ETCs pending fundamental reform will ensure that the Fund
will be sustainable for future years. This action will prevent
increases in high-cost support due to the designation of additional
competitive ETCs or line growth among existing competitive ETCs.
Although I would have preferred that the Joint Board make a
recommendation with respect to fundamental reform, the cap will stop
growth in competitive ETC support while the Joint Board and the
Commission consider fundamental reforms to address issues related to
the distribution of support.
Question 2. What can be done to reduce the growth in the Universal
Service Fund and lessen the burden on consumers in donor states?
Answer. As we look to achieve the long-term goals of the Universal
Service program, we must recognize how technological changes are
putting strains on the mechanics of both our contribution and
distribution systems. With respect to the contribution mechanism, I
believe that a numbers-based contribution mechanism would help maintain
the stability of the Fund by assessing all technologies used to make a
phone call on a similar basis and would be competitively and
technologically neutral. With respect to the distribution mechanism, I
generally support proposals that allow carriers to receive support
based on their own costs. In particular, I support the elimination of
the identical support rule by which competitive Eligible
Telecommunications Carriers (ETCs) receive support based on the
incumbent's costs, even if its costs are significantly lower. I further
believe we should review whether the use of reverse auctions is an
effective and competitively neutral way to determine high-cost
Universal Service funding to ETCs. Implementation of such proposals
would benefit consumers in both net donor and net recipient states.
Question 3. Is the Joint Board considering the use of reverse
auctions to distribute Universal Service funds? Would reverse auctions
reduce the size of the Fund and help donor states like New Jersey?
Answer. On August 11, 2006, the Joint Board issued a Public Notice
seeking comment from interested parties on the use of auctions to
determine Universal Service support.\4\ More than 50 parties filed
comments and reply comments in fall 2006, responding to the Joint
Board's request for comment. On February 20, 2007, the Joint Board held
an en banc hearing in Washington, D.C., where it heard, among other
issues, from experts in support of, and in opposition to, the use of
auctions to determine Universal Service support. \5\ The Joint Board
also issued a Public Notice on May 1, 2007 seeking comment on proposals
for long-term, comprehensive reform of high-cost Universal Service
support.\6\ Among the proposals on which the Joint Board sought comment
is a proposal to use reverse auctions to distribute high-cost support.
I further believe we should review whether the use of reverse auctions
could provide a technologically and competitively neutral means of
controlling Fund growth and ensuring that supported carriers utilize
the most efficient technologies over time, which would benefit
consumers in both net donor and net recipient states.
---------------------------------------------------------------------------
\4\ See Joint Board Auctions Public Notice, 21 FCC Rcd 9292 (2006).
\5\ See Federal-State Joint Board on Universal Service to Hold En
Banc Hearing on High-Cost Universal Service Support in Areas Served by
Rural Carriers, WC Docket No. 05-337, Public Notice, 22 FCC Rcd 2545
(2007). Statements, slides and audio transcripts are available at
http://www.fcc.gov/wcb/tapd/universal_service/JointBoard/welcome.html.
\6\ Joint Board Comprehensive Reform Public Notice, FCC 07J-2
(Fed.-State Jt. Bd., rel. May 1, 2007).
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______
Response to Written Questions Submitted by Hon. Daniel K. Inouye to
Roger Nishi
Question 1. The Joint Board characterizes its proposal for a cap on
support for competitive carriers as interim, while it considers options
for long-term reform. In the long term, do you believe the Universal
Service Fund should support both wireline and wireless technologies?
Answer. Yes. Both services are complimentary to each other and, in
the long term, the Fund should support both wireline and wireless
technologies. However, the support should be based on the carriers own
costs and, therefore, the identical support rule should be eliminated.
As Chairman of OPASTCO, I am on record in support of the Joint Board's
recommended interim cap on the competitive eligible telecommunications
carrier (CETC) portion of the Fund.
Question 2. In the long term, do you believe that Universal Service
funding should be available to more than one carrier in a geographic
area?
Answer. Yes. As stated above, both wireline and wireless
technologies should be supported. Carriers receiving Universal Service
Fund (USF) support should fulfill the goals of the 1996
Telecommunications Act by being accountable, efficient and by properly
using the funds.
Question 3. In 1997, the FCC decided to add to the Universal
Service principles created by Congress a new principle of ``competitive
neutrality.'' Do you believe that the Joint Board recommendation is
consistent with the principle of competitive neutrality?
Answer. Yes. The USF's high-cost loop fund for wireline service has
been capped for a number of years. As FCC Chairman Kevin Martin has
illustrated, all of the current growth in the high-cost program has
been in the CETC portion of the Fund while there has been no growth in
the incumbent local exchange carrier (ILEC) portion of the Fund. The
Joint Board's current recommendation is to temporarily cap CETCs. The
proposed interim cap is to slow the growth of the Fund while both
Congress and the FCC enact comprehensive USF reforms.
______
Response to Written Questions Submitted by Hon. Bill Nelson to
Roger Nishi
Question 1. For those of you who do not support the interim cap,
what other steps can we take to immediately control growth of the USF?
Answer. As Chairman of OPASTCO, I am on record in support of the
interim cap on CETCs. In addition, elimination of the identical support
rule would substantially control the growth of the Fund.
Question 2. The rapid recent growth in the Fund seems to indicate
that we must do something--I'd like to hear your solutions.
Answer. First, the FCC needs to quickly adopt the Joint Board's
recommendation to temporarily cap the CETC fund. Next, both Congress
and the FCC need to move forward with long-term reforms such as
eliminating the identical support rule, broadening the base of
contributors to the Fund and strengthening the requirements for CETC
designation.
Question 3. Getting beyond the issue of an interim cap, what
recommendations do you have for comprehensive Universal Service reform?
Answer. Eliminate the identical support rule, broaden the base of
contributors to the Fund and strengthen the requirements for CETC
designation.
Question 4. What savings do you think these suggestions would
generate?
Answer. The suggested reforms in the above answer would make the
Fund more efficient, require greater accountability and provide for the
proper use of the Fund as envisioned by the 1996 Telecommunications
Act. However, if policymakers want to achieve ubiquitous broadband and
mobility services, it is unreasonable to expect the size of the Fund to
shrink.
______
Response to Written Questions Submitted by Hon. Daniel K. Inouye to
Jonathan D. Foxman
Question 1. The Joint Board characterizes its proposal for a cap on
support for competitive carriers as interim, while it considers options
for long-term reform. In the long term, do you believe the Universal
Service Fund should support both wireline and wireless technologies?
Answer. I believe Universal Service Fund support should not
distinguish among technologies. The fund should support the designated
services regardless of the technology (wireless vs. wireline), and
regardless of category of service provider--whether the provider
satisfying the ETC criteria is an incumbent or a competitive entrant.
The purpose of the Fund is to provide rural communities with services
and choices that are comparable to those available in urban
communities. I believe what technology is utilized to deliver those
services is incidental. In fact, it serves the public interest for
government to be ``color blind'' with respect to technology. If a new
technology can provide the same or better service or more services at a
lower cost, then allowing it to be utilized, i.e., without the
discrimination that would be implicit in unequally subsidizing a less
efficient technology, will force one or both of the following
beneficial outcomes of competition. Either the company that provides
the more efficient technology will win customers and deliver to them a
better service at a lower cost or incumbents will be forced to (a)
improve the efficiency and capabilities of their businesses or (b)
adopt the new technology and bring the same benefits to consumers. In
either case, the consumer will benefit. For this reason, I believe the
Universal Service Fund should support any technology--wireless,
wireline, or whatever may develop in the future.
Question 2. In the long term, do you believe that Universal Service
funding should be available to more than one carrier in a geographic
area?
Answer. Yes. Competition is essential to delivery of high quality,
affordable advanced communications services. The evidence is
overwhelming. So much of our Nation's economic system, regulations, and
laws are based upon this principle of the benefits of competition.
I feel very strongly that the public interest is served best when
companies can compete freely to earn consumers' business. The human
mind and, therefore, all that it creates (including businesses) is
driven by a complex system of responses to incentives and
disincentives. There must be an incentive to providing the best service
at the lowest cost and a disincentive to not doing so. Anything less
cannot maximize the benefit to consumers and, therefore, does not serve
the public interest. If only one carrier can access Universal Service
funding support in a geographic area, then it will have little
incentive to serve consumers' needs adequately; and competitive
entrants would be denied the ability or incentive to enter the market.
There are no examples in our economic history when this has been a good
thing. Therefore, I believe it is critical that Universal Service
funding be available to more than one carrier in a geographic area.
Question 3. In 1997, the FCC decided to add to the Universal
Service principles created by Congress a new principle of ``competitive
neutrality.'' Do you believe that the Joint Board recommendation is
consistent with the principle of competitive neutrality?
Answer. I do not believe that the Joint Board's recommendation is
at all consistent with the principle of competitive neutrality. It is
inappropriate for regulators, rather than consumers, to distinguish
among types of companies and, thereby, pick winners and losers in what
is supposed to be a free market.
Similarly, I do not believe that eliminating the so-called
``identical support'' rule would be consistent with the principle of
competitive neutrality. If the government gives the incumbent ILEC $1
per line, then it should give the CETC $1 per line; that is competitive
neutrality. If a cap were imposed and the ILEC received, for example,
$1 per line while the CETC only received 75 cents for providing the
same supported service to the same customers, that would blatantly
violate competitive neutrality and would amount to improperly favoring
one technology or type of competitor over another. Specifically, if you
support the highest cost competitor in a marketplace with greater
subsidization, are you not favoring them? Are you not accommodating
their inefficiency and interfering with the workings of the free
market?
Furthermore, wireless is required and accountable to use the $1 to
expand its network. If it happens that the wireless company can do more
with that $1 per line, for example build two cell sites instead of one,
then that is a good thing; it benefits consumers and avoids waste of
public funds. Every penny of the dollar will be spent to further the
public interest, as intended by Congress in the Telecommunications Act
of 1996 and as mandated of the FCC in its formative statute. In fact,
when the dollar goes to rural construction investment by the low-cost
competitor, more of the dollar goes to serving the public interest than
if the dollar were given to an incumbent ILEC, many of whom are
guaranteed a very comfortable rate of return which they can send to
their investors. If identical support results in pressure on the
incumbent ILECs to maximize their efficiency or even to improve or
change their technology, those improvements will benefit consumers.
The benefits of identical support per line, regardless of how the
level of support is determined, include resulting fairness, public
service, and efficiency: (a) the government will have done its job of
ensuring competitive neutrality, i.e., ``I gave you each $1; I did not
arbitrarily decide that one of you would receive that funding but not
the other,'' (b) the CETC will have done its job by investing that $1
in its network as required by law, benefiting the customer and again
with clear accountability because of the detailed accountings required
by state government, and (c) the marketplace will have done its job by
then pressuring all competitors to be as efficient as possible, even to
the point of evolving their businesses and technologies if necessary,
to meet the needs of rural consumers. Perfect!
______
Response to Written Questions Submitted by Hon. Bill Nelson to
Jonathan D. Foxman
Question 1. For those of you who do not support the interim cap,
what other steps can we take to immediately control growth of the USF?
Answer. As an important preface to my response, I urge you to
reconsider whether there is truly a need to ``immediately control
growth of the USF.'' Growth in the Fund is in fact not an imminent
threat, and therefore does not need to be immediately controlled. In
fact, while the Joint Board claims an ``emergency'' has arisen from
recent growth, the Fund over the years has weathered significant growth
rates without becoming ``unsustainable.'' Support to ILECs jumped from
$1.7 billion in 1999 to $3.1 billion in 2003, and continued to increase
from 2003 to 2005. (Support to ILECs was growing during these periods
even though ILEC line counts were decreasing.) Moreover, three-quarters
of the 2.0 percent increase in the contribution factor from 9.7 percent
to 11.7 percent from the first quarter to the second quarter of 2007
was as a result of true-up mechanisms within the program (1.5 percent
of 2.0 percent). Only one-tenth of the 2.0 percent increase resulted
from increases in high-cost support. This calculation corresponds with
FCC Chairman Martin's letter responding to an inquiry from
Representative Edward Markey.\1\ Moreover, the contribution factor
decreased significantly (to 11.3 percent) in the third quarter of 2007.
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\1\ Letter from Kevin J. Martin, Chairman, FCC, to Edward J.
Markey, Chairman, Subcommittee on Telecommunications and the Internet,
Committee on Energy and Commerce, U.S. House of Representatives (rel.
May 14, 2007), at 1 (``Martin Letter''):
Several factors contributed to the 2 percent increase of the
contribution factor for the second quarter of 2007. The largest single
factor was prior period adjustments that acted to reduce the Universal
Service Fund's revenue requirements in previous quarters. Specifically,
these prior period adjustments arose from additional contributions made
by AT&T and Verizon on past under-reported revenue, and from a change
in the amount of funds that the Universal Service Administrative
Company held in reserve for bad debts. The absence of these prior
period adjustments caused a 1.5 percent increase in the contributions
factor. The remaining 0.5 percent of the increase was due to reductions
in the funding base, increases in program demand, including for high-
cost support.
Even accepting, for the sake of argument, the Board's unsupported
projection that the Fund could increase by another $1 billion in the
next year, that increase would add only 31 cents to the Federal
Universal Service charge. As the Montana Public Service Commission
recently stated, the annual percentage rate of growth in the Fund is
trending toward decreasing, and ``[t]he growth in the size of the FUSF
that CETCs receive appears to behave like an ``S-curve'' (logistic).''
\2\
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\2\ MTPSC Comments, In the Matter of High-Cost Universal Service
Support, WC Docket No. 05-337, CC Docket No. 96-45, at 4 n. 4 (June 6,
2007) (``MTPSC Comments''). That Commission noted:
While the FUSF growth due to CETC designations has increased
monotonically since year 2000, the annual percentage rate of growth has
at the same time nearly decreased monotonically. . . . [F]or the Joint
Board to now predict a 90 percent plus annual percent growth rate for
2006 to 2007 is suspect.
MTPSC Comments, at 4.
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Furthermore, Universal Service Administrative Company (``USAC'')
projections between the fourth quarter of 2006 and the second quarter
of 2007 show high-cost support rising 3.9 percent.\3\ This is a much
lower rate of growth than prior periods, suggesting that the growth
rate is slowing. Moreover, these increases are largely a product of the
fact that CETCs are new entrants who started with a baseline of zero
support from the fund. As competitive entry has advanced, CETCs' share
of the Fund has increased correspondingly.
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\3\ Proposed Fourth Quarter 2006 Universal Service Contribution
Factor, CC Docket No. 96-45, DA 06-1812, FCC Public Notice (rel. Sept.
11, 2006); Proposed Second Quarter 2007 Universal Service Contribution
Factor, CC Docket No. 96-45, DA 07-1330, FCC Public Notice (rel. Mar.
15, 2007).
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However, increased payments to competitors were foreseen by the
drafters of the 1996 legislation.\4\ What legislators did not
anticipate \5\ was that after competitors entered rural markets, there
would be a failure of regulatory will to concomitantly reduce funding
to carriers who lost customers or used funds inefficiently.\6\
Certainly, Federal decisions in these matters cannot be universally
popular with all industry participants--but consumers, not carriers,
are the intended beneficiaries of Universal Service. As the Montana
Public Service Commission noted recently,\7\
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\4\ If concern over Fund size relates to carrier receipts, consider
the fact that wireline carriers still receive an enormous share of
Universal Service funding. In the State of Montana, in 2006, according
to the Joint Board, incumbent wireline carriers received $69.7 million
in funding, and competitive carriers such as wireless received $7.2
million in funding. See Federal-State Joint Board on Universal Service,
Universal Service Monitoring Report, Table 7.2 (2006), attached hereto
(``Monitoring Report Attachment''). Incumbent wireline carriers still
receive more than three times as much funding as their wireless and
wireline competitors, and in some states, they receive 100 percent of
Universal Service funding. The FCC adopted a five-year transition
period, which it has extended indefinitely, during which rural ILECs
would not lose support when CETCs entered. See Federal-State Joint
Board on Universal Service, Fourteenth Report and Order, Twenty-second
Order on Reconsideration, and Further Notice of Proposed Rulemaking, 16
FCC Rcd 11244, 11294-95 (2001).
\5\ Joint Board Member Billy Jack Gregg, in testimony before the
Communications Subcommittee of this Committee, described legislative
intent and expectations in 1996 as follows (emphasis supplied):
It should not be surprising that funding for competitive ETCs has
increased. After all, before the advent of competition incumbents
received 100 percent of high-cost funding. It was expected that as
competitors gained ETC status and won customers in high-cost areas,
their high-cost funding would rise. What is surprising is that
incumbent support has not dropped by an amount proportionate to the
increase in competitive ETC funding. . . .
Not only was the introduction of competition expected to lower
prices of telecommunications services, it was supposed to lower the
cost of Universal Service as providers competed for the Universal
Service subsidy.
Testimony of Billy Jack Gregg before Communications Subcommittee,
Senate Commerce, Science and Transportation Committee, at 6-7 (March 1,
2007), referencing House Report No. 104-204 (I) (1995), Arnold & Porter
Legislative History P.L. 104-104 (A&P) at 60; Senate Report No. 104-23,
A&P at 254 (1995).
\6\ In 2006, the FCC extended indefinitely the transition period
during which rural ILECs would not lose support when they lost the
customers/lines to whom that support had related. Federal-State Joint
Board on Universal Service, Order, 21 FCC Red 5514 (2006).
\7\ MTPSC Comments, at 7.
There is, however, need to consider the benefits of CETC
designation, benefits that play out in terms of economic
development, public interest benefits to consumers, and
ultimately Universal Service. If the FCC is to have a balanced
decision, it must not ignore Universal Service benefits to the
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exclusive focus on Fund size.
Congress, enacting the 1996 Telecom Act, decided that rural
consumers should have the access to advanced services such as wireless
that are reasonably comparable in quality and price as their urban
counterparts, from providers operating in competitive markets, governed
by technology-neutral rules. In short, the growth of the Fund is not
some unintended aberration; it is the direct result of a conscious and
enlightened public policy.
If some perceive that the Universal Service Fund is attracting too
much demand, then we need to consider whether Universal Service funding
should be equitably distributed to the carriers who can use it most
efficiently, and whose services are most in demand. Any other result
would injure citizens, who increasingly desire wireless service--
particularly in rural areas, where wireless service is very useful for
stranded people roadside, and where wireless carriers need Universal
Service funding in order to fiscally justify extending their networks
to serve additional areas. Unlike incumbent local exchange carriers,
wireless carriers do not have a built-in, regulator-guaranteed rate of
return. Moreover, we do not collect access charges, a solid revenue
stream for wireline carriers. Accordingly, our business model depends
upon making a solid business case, in terms of customer revenues, for
every tower we must fund. If the customer revenues cannot justify the
tower, then it cannot be built, pursuant to lenders' and investors'
fiscally responsible requirements--unless another source of funding for
that tower is available, such as Universal Service. If Universal
Service funds are denied to wireless carriers, or diminished, many
towers in rural areas, therefore, will not be built.
Meaningful competition does not exist in rural areas where wireless
carriers cannot, without support, provide consumers with a viable
substitute for wireline service. This is supported by FCC data. Between
1995 and 2005, the average cost per minute for wireless service has
dropped from 43 cents per minute to 7 cents per minute.\8\ Competitive
forces have not only driven down prices, they have driven the average
number of wireless minutes per month upward from 119 minutes to 740
minutes over the same period.\9\ Accordingly, the price of telephone
service for wireless consumers, who contribute more to the USF than any
other class of consumers, has decreased dramatically thanks to
competition, even including the increase in the contribution factor.
The drafters of the 1996 Act were correct in believing in, and desiring
to permit, the benefits of competition.
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\8\ Implementation of Section 6002(b) of the Omnibus Budget
Reconciliation Act of 1993--Annual Report and Analysis of Competitive
Market Conditions With Respect to Commercial Mobile Services, Eleventh
Report, 21 FCC Rcd 10947 (2006), App. A, Table 10.
\9\ Id.
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Without receiving Universal Service funds comparable to those
received by wireline carriers, wireless carriers cannot compete on an
even footing with the USF-receiving LECs, and the benefits of true
competition cannot reach rural areas.
Nevertheless, if steps are to be taken in order to immediately
control growth in the Fund, please see the response to the next
question, below.
Question 2. The rapid recent growth in the Fund seems to indicate
that we must do something--I'd like to hear your solutions.
Answer. First, as noted in the preceding response, growth in the
Fund is nothing new or extraordinary, and most of the recent growth was
not even caused by increases in the high-cost fund (relating to
wireless carriers).\10\ In addition, on June 11, 2007, the FCC's
Wireline Competition Bureau announced that it would release an
additional $650 million in unused E-Rate funds from funding years 2001-
2004.\11\ We support appropriate use of funds for schools and
libraries. But this unexpected disbursement of $650 million in
previously withheld funding--equivalent to nearly two-thirds of the
total support granted to CETC carriers for the entire year of 2006--
raises questions about the basis for the contribution factor and the
reasons for the wild fluctuations in the rate (from 9.7 percent in the
first quarter, to 11.7 percent during the second quarter, to 11.3
percent during the third quarter of 2007). Why was this enormous
disbursement made if the Fund is in jeopardy?
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\10\ See note 1, supra, citing the letter wherein FCC Chairman
Martin noted that most of the recent Fund growth stems from ``prior
period adjustments arose from additional contributions made by AT&T and
Verizon on past under-reported revenue, and from a change in the amount
of funds that the Universal Service Administrative Company held in
reserve for bad debts.'' Martin Letter (emphasis supplied).
\11\ Wireline Competition Bureau Announces Carryover of Unused
Funds for Funding Year 2007, (DA 07-2470) (released June 11, 2007)
(pursuant to 47 C.F.R. 54.507(a)(2), the Commission carried forward
these unused schools and libraries funds to the 2007 funding year).
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Moreover, the effect of Fund growth on consumer rates is, at least
currently, we believe, offset by the fall in prices for wireless
services, as discussed in detail in my written testimony submitted with
this Committee. Accordingly, for all of the foregoing reasons, Joint
Board and FCC concern over this growth is vastly overstated.
Nevertheless, I offer here suggestions for legislative action. In
summary, a long term plan should be developed and implemented,
including portability of support and broad based contributions to the
Fund, and recognizing the increasing importance of the broadband and
mobility aspects of telecommunications services. The details are as
follows.
A. Make Support ``Portable'': If a Carrier Loses a Line, It Should Lose
Support/Funding for That Line
We favor making support fully portable, in order that a carrier
that wins a line wins the accompanying USF support. Many of the lines`
for which local exchange carriers receive support were dug in and paid
off many years ago; some are no longer even used to provide service.
CETCs' customers are increasingly shouldering the burden of funding the
USF, and indeed will eventually be the primary contributors in some
areas. Accordingly, it would be illogical to take from the customers of
new entrants still paying for their initial infrastructure in order to
give to the customers of the existing carriers with entrenched customer
bases, USF incomes, access line incomes, and little if any new
construction expenses.
We believe the carrier that has the customer should receive the
support for serving that customer. And logically, when a carrier loses
a customer, the support should stop arriving. This approach was
initially upheld by the Fifth Circuit Court of Appeals in the case of
Alenco Communications, Inc. v. FCC:
. . . [T]he [FCC's Universal Service] order provides that the
Universal Service subsidy be portable so that it moves with the
customer, rather than stay with the incumbent LEC . . . The
purpose of Universal Service is to benefit the customer, not
the carrier. ``Sufficient'' funding of the customer's right to
adequate telephone service can be achieved regardless of which
carrier ultimately receives the subsidy.\12\
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\12\ Alenco Communications, Inc. v. FCC, 201 F.3d 608, 615 & 621
(5th Cir. 2000).
Yet, inexplicably, this course was reversed by the FCC, and now,
the cost of USF subsidies that are still being paid to wireline
carriers for customers those carriers have lost (lines that were built
long ago and paid for many times over) is over $300 million per year.
Wireless carriers, in contrast, lose support when we lose customers.
The Senate can direct the FCC to reduce waste in the system by
requiring that a carrier no longer serving a customer give up its claim
to funds initially relating to that connection. We believe that a
carrier that loses a customer should stop receiving support for that
customer's lines.
B. Broaden Base of Support
In addition, we suggest broadening the basis of support in order
that all providers of communications-based services, including
broadband voice and information services, will be required to
contribute to Universal Service. Specifically, we believe contributions
should be supported by VoIP, broadband (wireline, cable, and wireless),
and voice-grade mobile, ILECs, and CLECs.
C. Recognize Increasing Importance of Broadband and Mobility
Please see the response to the question below.
Question 3. Getting beyond the issue of an interim cap, what
recommendations do you have for comprehensive Universal Service reform?
Answer. We suggest shifting away from the current funding
structure, which is oriented to support legacy voice services, and
instead focusing on support for the deployment and operation of
broadband services and mobile wireless services, in high-cost rural
areas. This would recognize citizens' increasing desires in rural areas
for advanced broadband and mobile services similar to those available
in urban areas, but that have not yet been fully deployed in many
rural, high-cost areas. Broadband and mobility are the 21st century
functionalities that consumers most intensely want and need.
Accordingly, we believe it is logical to replace the existing
system with one that targets funds, on a competitively and
technologically neutral basis, to the broadband and mobile networks
that should be built to satisfy consumers today--and that concomitantly
draws equitable contributions from all telecommunications-based
services, including all IP services. At the same time, the existing
``legacy'' funding mechanisms should be reformed and phased down,
because the traditional 20th century voice services to which they are
targeted are already fully deployed in most rural areas, and demand for
those services is declining. Many of the carriers that deployed legacy
voice systems would now like to deploy advanced broadband or mobile
technologies, so this system should transition their fund receipts from
legacy voice system funding to funding for the new, advanced
technologies.
Question 4. What savings do you think these suggestions would
generate?
Answer. We believe these suggestions will save sufficient funds to
stabilize the Fund, and will generate benefits that far outweigh any
costs. They will target the disbursed funds more efficiently, by
creating incentives for all carriers to provide improved services, with
funding based on a model of forward-looking costs of an efficient
provider of services. These suggestions would focus disbursements so as
to motivate efficient provision of the broadband and mobility services
that modern citizens increasingly want, for critical public safety as
well as business and personal communications, including in the rural
areas this Fund was designed to serve.