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The Reform of Universal Service

The Reform of Universal Service. NARUC Accounting and Finance Sub-Committee Spring Meeting April 1, 2008 New Orleans, Louisiana. Current Issues in Universal Service Reform. Universal Service Contribution Reform How the FCC/industry pays for the costs of Universal Service policy.

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The Reform of Universal Service

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  1. The Reform of Universal Service NARUC Accounting and Finance Sub-Committee Spring Meeting April 1, 2008 New Orleans, Louisiana

  2. Current Issues in Universal Service Reform • Universal Service Contribution Reform • How the FCC/industry pays for the costs of Universal Service policy. • Universal Service High Cost Reform • How the FCC ensures affordable communications to rural areas.

  3. Contribution Reform - Background • The USF contribution factor is set quarterly by the FCC. • The current USF contribution factor is 11.3%. • General methodology for calculation: • USF Program Costs ÷ Assessable Revenues = Contribution Factor • The factor has grown steadily over time and is currently equal to its 2nd highest level ever.

  4. Contribution Reform – The Factor since 2000 Source: USF Contribution Factor Public Notices, available at: http://www.fcc.gov/omd/contribution-factor.html

  5. Contribution Reform – The Revenues Base • Assessable revenues are those revenues associated with interstate (and international) telecommunications end-user revenues, as well as those associated with Interconnected VoIP. • Price competition, service substitution to disparately regulated services, and growth of bundled services has caused the contribution base to decline. • Despite recent attempts to bolster the assessable revenues base, it is not keeping pace with the growth of the Universal Service Fund.

  6. Contribution Reform – Base v. Fund Size Contribution Base v. Fund Size, Since the Year 2000 $7.7B in 2008 $4.9B in 2000 Source: USF Contribution Factor Public Notices, available at: http://www.fcc.gov/omd/contribution-factor.html

  7. Contribution Reform – Problems with Revenues • Reform of the revenues-based contribution methodology is long overdue. • It is confusing to customers. • It is discriminatory against more “traditional” customers • It is completely reliant on arcane definitions of categories of service, and thus unsustainable in the long term. • It lacks bright-line clarity about assessable services. • It does not adequately address service bundles or new technologies. • It is extremely costly for service providers to administer.

  8. TNs based on estimates Contribution Reform – Trend Comparison

  9. Contribution Reform – Numbers-Based • The FCC should adopt a contribution mechanism based on telephone numbers. • It is easier for customers to understand. • Most residential consumers will see a decrease in their USF line item charges. (Others will see little/no change.) • Substitutable services (and competing service providers) are treated equally. • It ensures that the Universal Service Fund remains stable. • It can be significantly more efficient for service providers to administer.

  10. Universal Service High Cost Reform • High Cost reform is also long overdue. • Interim Cap NPRM, Auctions NPRM, and the Joint Board Recommended Decision are significant opportunities for reform. • FCC should not discriminate against rural customers based on the size of the carrier that serves them. • FCC should support broadband and wireless deployment in currently unserved areas.

  11. High Cost Reform – Interim Cap • The FCC should adopt an interim cap to abate the runaway growth of the fund associated with ETC funding. • Wireless CETC funding will continue to grow by approximately $150M/year, exceeding $1.5B by 2009 • While AT&T and AllTel have agreed to funding caps, approximately 51% of CETC funding remains uncapped. • Maintaining the status quo only promises more growth. • Approximately 90 ETC applications (60 companies) are pending with the FCC and state commissions. (As of Feb 2008) • 76 of these applications are associated with carriers not subject to a cap.

  12. High Cost Reform - Broadband • On July 16, 2007, AT&T proposed that the FCC create a Broadband USF Pilot program. • Clearly, extending broadband services is a critical national telecommunications policy goal. • FCC should adopt project-based broadband funding • It should not simply add broadband to the universal service definition • FCC should focus on providing support for broadband services to unserved areas

  13. High Cost Reform - Auctions • AT&T supports the FCC’s considerations of pro-market solutions to universal service high-cost reform. • However, there are a significant number of details to work through before conducting an auction, including: • What is being auctioned? (ETC/COLR Obligations?) • How many winners? • Whether/How to set a reserve price? • How to determine an auction winner? (e.g. Price alone?) • How to transition to post-auction? • Auctions shouldn’t just be used in currently supported geographic areas.

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