Transcript The Good Old Days”

Basic issues underlying Universal
Service
• Ubiquity
– Service everywhere
• Affordability
– Affordable services regardless of
• Terrain (high cost areas)
• Consumer income
• Who gets the payments?
– Consumer?
– Service provider?
Communication Act of 1934
• There shall be:
– . . . Interstate and foreign commerce in communication
by wire and radio so as to make available, as far as
possible, to all people of the United States, without
discrimination on the basis of race, color, religion,
national origin, or sex,* a rapid, efficient, nationwide,
and worldwide wire and radio communication service
with adequate facilities at reasonable charges . . .
* Added by Telecom Act of 1996
“The Good Old Days”
• Universal service through low-priced residential
local rates
– Pricing cross subsidies
• Urban to rural/Business to Residential/Toll to local service
• Geographic averaging
• Monopoly provider—limits on entry and exit
• Price tag—estimated as being as much as $20
billion
The Telecommunications Act of
1996
• Mandates competition in all areas of
telecommunications
• Mandates the continuation and even
expansion of universal service
– Actually codifies the words “universal service”
for the first time
“The Brave New World”
• Universal service funding not to infringe upon the
achievement of local competition
• No more implicit subsidies—universal service
funds should be made explicit, “specific,
predictable, and sufficient”
– Ongoing efforts to untangle former subsidy payments
that flowed from long distance companies to local
telephone companies and between local telephone
companies and make them explicit
Telecommunication Act of 1996
Universal Service Principles
• Section 254(b)
– Quality services should be available at just,
reasonable, and affordable rates.
– Access to advanced telecommunications and
information services should be provided in all
regions of the Nation.
More TA 96 Principles
• Consumers in all regions of the Nation, including
low-income consumers, and those in rural,
insular, and high cost areas, should have access
to telecommunications and information services,
including interexchange and advanced
telecommunications and information services, that
are reasonably comparable to those services
provided in urban areas and that are available at
rates that are reasonably comparable to rates
charged for similar services in urban areas
Principles, continued
• All providers of telecommunications
services should make an equitable and
nondiscriminatory contribution to the
preservation and advancement of universal
service
• There should be specific, predictable and
sufficient Federal and State mechanisms to
preserve and advance universal service
Universal Service Defined
• Section 254 ( c )
– “Universal service is an evolving level of
telecommunications services that the
Commission shall establish periodically . . .
Taking into account advanced in
telecommunications and information
technologies and services”
• FCC to consult with states through a Joint
Board
Basic Universal Service
• In determining what is included, Commission is to
consider what services are
– are essential to education, public health, or public safety
– have, through the operation of market choices by
customers, been subscribed to be a substantial majority
of residential customers
– are deployed in public telecommunications networks by
telecommunications carriers
– are consistent with public interest, convenience, and
necessity
At this point, basic universal
service includes. . .
•
•
•
•
•
•
Single-party service
Voice grade access to the public switched network
Touch-tone
Access to interexchange services
Access to emergency services (911 and E911)
Access to operator service and to directory
assistance
• Toll limitation service for low-income customers
A New Category of Universal
Service
• Elementary and secondary schools and
classrooms, health care providers, and
libraries should have access to advanced
telecommunications services
Not Just One Universal Service
Fund . . . .
• Interstate Universal Service Funds generated as a
% of interstate and international revenues
(6.6827% of $20.2 Billion for 1st Quarter 2001) to
pay for assistance to:
– Low-income consumers
• Lifeline and Link Up
– Institutional consumers
• Schools, Libraries, and Rural Health Care Providers
– Telecommunications carriers
• High Cost Support
Who Pays?
• Mandatory for all telecommunication service
providers (i.e., common carriers) who provide
interstate telecommunications services
– Includes cellular telephone and paging services, mobile
radio services, operator services, PCS, access to
interexchange service, special access, WATS, toll free
services, 900 services, MTS, private line, telex,
telegraph, video services, satellite services, resale
services
• Also providers of telecommunications (not
common carriers) including payphone aggregators
and private networks that sell excess capacity
Who Gets Compensated?
• Eligible Telecommunications Carriers for
high cost and low income universal service
and for services to Rural Health Care
Providers
• Telecommunication Service Providers who
provide discounts to schools and libraries
• Providers of inside connections and internet
access for schools and libraries
Institutional Consumers
• Schools and Libraries (annual cap of $2.25 billion)
– K-12 and public libraries
– Discounts on commercially available telecommunications services,
Internet access, and internal connections
– Discounts (20%-90%) tied to % of students eligible for school
lunch program; greater discount for rural schools
– Estimate for 1st Quarter 2001 = $562.5 million
• Rural Health Care Providers (annual cap of $400 million)
– Public or non-profit rural providers
– Receive telecommunications service at 1.544 Mbps or less at a rate
no higher than comparable urban rate; also receive up to $180 per
month in toll charges to an Internet provider
– Estimate for 1st Quarter 2001 = $1.8 million
Eligible Telecom Carrier (ETC)
• Designated by state commission for a specific area
• Provides universal service elements using own facilities or
combination of its own and facilities of the incumbent
local telephone company
• Eligible to receive universal service support
– For serving high cost areas
– For providing service to low-income consumers
• Numbers by category, 2001
– Rural incumbents, 1344
– Non-Rural incumbents, 88
– CLECs, 9
Low-Income Consumers
• Lifeline (estimate for 1st Qtr 2001, $158.7 Million)
–
–
–
–
Credit on monthly bill ($4.35-7.85)
Means-test
Single residential telephone line
Added credit of up to $25 for tribal lands (resulted in $1
rates)
• Link Up (estimate for 1st Qtr 2001, $9.9 Million)
– Reduction of service connection charge (up to half or
$30, whichever is less; increased to $100 for tribal
lands)
– Deferred payment plan for remaining connection
charges
Not all carriers are treated the
same
• Rural versus non-rural distinction
– Well over 80% of telephone lines are provided in nonrural areas; and
– well over 80% of lines are provided by large telephone
companies
• The maintenance of small rural telephone
companies is a politically and symbolically
important issue
– Leads to continued special treatment of small telephone
companies in rural areas
Traditional Support
• Support for rural carriers and for “hold-harmless”
payments to non-rural carriers
– High cost loop support (for 2001)
• Rural $834.67 Million; non-rural $84.719 Million; $198,000
for CLEC
– Local switching support (for 2001)
• Mostly rural (companies under 50,000 lines)--$390.836
Million
– Long term support (for 2001)
• Mostly rural companies -- $484.879
High Cost Support for Carriers
• Move away from embedded historical costs of the
local telephone company to forward looking
economic costs (FLEC)
• Use of Cost Proxy Models to determine the FLEC
at the wire center level
• Support provided to carriers in states with
statewide average in excess of the benchmark
FLEC.
• Benchmark FLEC = 135% of nationwide average
FLEC per line
More on High Cost Support
• Total high cost support calculated at state level,
then targeted to high cost wire centers
• Only 76% of FLEC in excess of benchmark is
supported (amount determined to be intrastate)
• Per line support payments to any Eligible
Telecommunications Carrier providing service in a
wire center with FLEC above benchmark
Even More on High Cost Support
• Non-rural support began January 1, 2000
– For 2000 was $223.589 Million
• Interim “hold harmless” provision, until at
least January 1, 2003
– Avoid sharp rate increases
– Carriers to receive at least what they had
received under old method (at least in theory)
– Also being targeted to high cost wire centers
Non-Rural Support
• States getting more support under FLEC than
under former system:
– Alabama, Kentucky, Maine, Mississippi, Montana,
Vermont, West Virginia, Wyoming
– Example: Mississippi goes from $1.7 M to $26.2 M
• States that got more under former system:
– Arkansas, California, Colorado, Indiana, Missouri,
North Carolina, New Mexico, Oklahoma, Puerto Rico,
South Carolina, Texas, Virginia
– Example: Missouri goes from $2.5 M to 0
Even More on High Cost Support
• Rural Telephone Companies
– Rural carrier defined as local exchange carrier
serving areas of cities under 10,000; service
areas of under 50,000 lines; fewer than 100,000
lines within a state; or, nationwide, less than
15% of lines in communities over 50,000
– Difficulty of building a cost proxy model for
rural areas
– Potential political fall-out
Rural Support
• Rural Task Force recommendations
– Do not apply a FLEC approach
– Institute a five-year plan that continues the high
cost support mechanisms and even increases
them to encourage investment by rural carriers
• Loop support to increase by $1.26 Billion over five
years
• Allows rural carriers to recover 50% of increase in
costs if loop costs increase 14% in one year
Now a plan to make interstate
support explicit
• Theory is that current access charges filled with
implicit subsidy
• CALLS* Plan, accepted by FCC
– Goal is to decrease access charges to a target of 0.55 cents per
minute for large companies
– Shift more of the interstate loop costs to the customer (Increase
Subscriber Line Charge to $6.50 by 2003); get the Carrier
Common Line Charge paid by long distance companies to zero
– Help companies with high loop costs through $650 Million new
interstate universal service fund
*Coalition for Affordable Local and Long Distance Servie)
Rural Plan
• MAG* Plan
– Per-minute access rate for small (mostly rural)
companies is 4.3 cents per minute
– Plan to get the rate down to 1.6 cents per minute by
2003
– Shift more to customer (increase subscriber line charge
to $6.50)
– Freeze access revenue per line
– Create an explicit subsidy (Rate Averaging Support)
*Multi-Association Group