The USF contribution factor could spike in Q3 from 17.4 percent to 19.6 percent or more of carriers' U.S. interstate and international (long-distance) telecom end-user revenue, said industry consultant Billy Jack Gregg in his quarterly email update. He cited Universal Service Administrative Co. projections of increased USF demand, particularly for E-rate school and library discounts, as the driver, and said the contribution (or assessment) factor could go even higher if projected industry revenue declines, as it has been trending. A 19.6 percent factor would be "the highest assessment factor ever." The previous high was 18.2 percent in Q1 of 2016, he said Wednesday. Some reacted to us with concern.
Federal Universal Service Fund
The FCC's Universal Service Fund (USF) was created by the Telecommunications Act of 1996 to fund programs designed to provide universal telecommunications access to all U.S. citizens. All telecommunications providers are required to contribute a percentage of their end-user revenues to the Fund, which the FCC allocates for four core programs: 1. Connect America Fund, which subsidizes telecom providers for the increased costs of offering services to customers in rural and remote areas 2. Lifeline, which directly subsidizes low-income households to help pay for the cost of phone and internet service 3. Rural Health Care, which subsidizes health care providers to offer broadband telehealth services that can connect rural patients and providers with specialists located farther away 4. E-Rate, which subsidizes rural and low-income schools and libraries for internet and telecommunications costs The Universal Service Administrative Company (USAC) administers the USF on behalf of the FCC, but requires Congressional approval for its actions. Many states also operate their own universal service funds, which operate independently from the federal program.
Telecom companies urged convening of state USF contribution revamp workshops in Nebraska, even if they delay the Public Service Commission's proposed adoption of a connections-based mechanism (see 1703280032). CenturyLink, Cox Communications and Level 3 sought workshops, in reply comments dated April 21 and posted Wednesday at the PSC (NUSF-100). “It is abundantly clear that more information must be presented before a connections-based mechanism can be safely implemented,” and it’s OK if that causes the PSC to miss a self-imposed Jan. 1 deadline for action, Cox said. "Stabilization of the fund can be achieved in 2018 under the current methodology while a thoughtful, reasonable connections-based methodology is created.” In another reply, CTIA said the PSC shouldn’t adopt USF changes now but instead should urge the Federal-State Joint Board on Universal Service to craft a plan for all states. "Nebraska is not unique in seeing declining revenues for its universal service program,” CTIA said. “Other states are seeing similar trends,” but the Nebraska PSC is alone in proposing "a novel contribution mechanism,” it said. However, a rural independent company -- Great Plains Communications -- replied that the PSC should reject calls for delay. “Any such delay should not occur since the Commission has already amply demonstrated that NUSF contribution reform is an urgent matter due to the continued erosion of the NUSF remittances generated by the current NUSF contribution mechanism.”
Telecom providers criticized a Nebraska proposal to change the state USF contribution formula from one based on revenue to a connections-based mechanism using phone numbers. In February, the Public Service Commission proposed a $1.29 surcharge for mobile voice, $1.24 for residential fixed voice and a five-tiered scheme for assessing charges to business lines. The current revenue-based contribution factor is 6.95 percent. But in testimony Friday released this week in docket NUSF-100, business line providers including Cox, Frontier and Windstream said the scheme for business lines isn't clear and may be tough to manage. For business lines, it’s not clear what revenue is to be considered in determining the surcharge -- only the business tariff rate or also extended-area-service fees and long-distance charges, Windstream said. Long-distance charges can fluctuate widely month to month, and business bundles could further complicate assessment, it said. Frontier said its billing system can't segregate or sort business customers into the five proposed tiers. Level 3 said assessing based on the number of phone numbers could hurt enterprise and government customers that have many phone numbers. CenturyLink said the business tiers are hazy and distinguishing between mobile and fixed lines for USF fees isn't equitable. CTIA said assessing different fees to mobile and fixed lines is “unreasonably discriminatory.” In other testimony, Communications Director Cullen Robbins proposed three alternative plans for contribution fees: (1) set mobile and residential voice surcharges equal at $1.29 and use two categories for businesses, single-line and multiline; (2) charge mobile and fixed the same fee and have one charge for business lines; and (3) use two categories for business -- single line and multitiered -- and treat residential fixed voice as a single-line business. "Continued declines in Nebraska Universal Service Fund (NUSF) remittances as a result of the erosion of the assessable base has led to a need to revise the contribution mechanism for the NUSF," Robbins said. A connections-based system is "more stable and predictable than the current mechanism,” he said. Some wireline companies supported the principle of assessing USF fees by connection as bringing more stability to USF. "A connection-based mechanism should be less volatile than a revenue-based mechanism, and … it should be less vulnerable to erosion of the contribution base," Windstream said. But Charter said it would be better to keep the status quo. "Moving away from this system will be complex, costly, confusing, and will likely need to be duplicated if the FCC ultimately changes the federal system,” it said. "Continuing with a revenue-based system is the most efficient, the most trusted, the most enforced and most enforceable, system yet devised. As [Winston] Churchill said: 'Democracy is the worst form of government, except for all the others.' The same can be said for revenue-based contribution systems -- at least at this time.”
Any grand infrastructure plan should go beyond public-private partnerships and tax credits and find ways to incorporate broadband, senators and witnesses said Wednesday during a Commerce Committee hearing. It followed another call Tuesday from President Donald Trump that Congress act on infrastructure. Senators repeatedly questioned what a broadband component should look like.
NCTA urged Congress, in any infrastructure proposal, to identify “problem areas before spending money to fix them,” “deliver broadband to those who don’t have it,” offer “equal opportunities for all qualified broadband providers,” and accept “alternative technologies in remote areas,” in a blog post prior to a Wednesday Senate Commerce Committee hearing on infrastructure spending. Policymakers should guarantee “transparency and accountability to ensure government funds achieve intended results,” said NCTA, which isn’t testifying. The one witness at the hearing with a clear telecom focus is NTCA CEO Shirley Bloomfield. She and USTelecom President Jonathan Spalter offered what they called a “simple road map” for the broadband spending they recommend. “Rather than reinventing the wheel, let’s put to better use initiatives and programs that have worked in the past to enable the availability and sustainability of rural broadband,” they said in a blog post for The Hill. “Serious consideration should be given, for example, to leveraging the federal Universal Service Fund (USF) programs as part of any new broadband infrastructure initiative.” They urged Congress to streamline and kill regulatory barriers in the process. ITTA, NTCA, USTelecom and WTA joined earlier this week to send a letter with recommendations (see 1702270038). Public Knowledge Vice President-Government Affairs Chris Lewis sent a letter to committee leaders urging Congress to weigh "how to ensure affordable, reliable access for all Americans, to expand economic opportunity for all." Lewis pointed to what he called market failures: "While high prices have driven robust rates of return on capital investment for broadband providers, they have not led those providers to invest those profits into deployment to rural, unserved, and underserved communities." President Donald Trump pressed for an infrastructure proposal of up to $1 trillion but didn't offer precise details. He was expected to have addressed a joint session of Congress Tuesday night, and infrastructure is one topic slated for the speech. “I hope that the president will lay out what it is he wants to do,” Senate Commerce Committee Chairman John Thune, R-S.D., told reporters Tuesday. “We don’t know exactly what approach he wants to take. From my standpoint, I’m interested obviously in how you would do any infrastructure plan that includes these private-public partnerships, or P3s as they call them, that work in more populated areas but how you would fund infrastructure in rural areas.”
A Vermont 911 case is raising legal and public policy questions about whether states can mandate backup-power requirements for wireless or interconnected VoIP carriers. Last week at the Public Service Board, some commented that federal statute bars states from making battery-backup mandates to either industry, and -- for wireline providers including VoIP -- that FCC existing backup power requirements make separate state rules unnecessary. A recent former California commissioner said in an interview it’s critical from a public policy standpoint for states and local governments to make their own decisions on communications network resiliency, including battery backup. A NARUC attorney disputed industry claims of federal pre-emption.
State commissioners seek more certainty about where they fit into the telecom landscape, said NARUC Telecom Committee Chairman Paul Kjellander in an interview Wednesday at the group's meeting. Early decisions by FCC Chairman Ajit Pai and congressional talk of a possible Telecom Act rewrite are good signs that clarity is coming, Kjellander said. As the meeting wrapped Wednesday, the board passed the three substantive telecom resolutions adopted Tuesday by the committee (see 1702140003).
FCC Chairman Ajit Pai has gotten off to an active start in his first two weeks in the job. Several former FCC officials said early on, in contrast to former Chairman Tom Wheeler, Pai could have a tough time figuring out what to do once designated to lead the regulator, especially given the Republican emphasis on less rather than more regulation and the strong possibility Congress, not the FCC, will address ISP privacy and net neutrality rules. But Pai is already moving forward with a busy agenda, teeing up six items for the Feb. 23 commissioners meeting. Much of his early emphasis has been on closing the digital divide. But controversy arose Friday (see 1702030070).
State government officials and others stressed benefits for rural schools as Arizona seeks to take advantage of up to $100 million in federal E-rate Category One funding for broadband. The state must act quickly to meet a likely April deadline to submit funding applications to the Universal Service Administrative Co., the officials said at an all-day Arizona Corporation Commission (ACC) workshop live-streamed Monday. The workshop is part of a rulemaking to create an estimated $8 million-$10 million state match of rural broadband funds with funding from the state USF (see 1701110062). With nearly a quarter of Arizona schools not meeting the national standard of 100 kbps per student -- affecting about 250,000 students -- the E-rate funding is a way to “get rural Arizona into the game,” said Commissioner Andy Tobin (R).
About 30 rural telcos told the FCC this past week they intend to stop offering broadband internet transmission service as separate components of their broadband internet access services. Minnesota Valley Telephone and Winthrop Telephone made filings (here and here) Friday of their broadband intentions, joining other rural telcos from Minnesota, Wisconsin and Iowa that made such filings in dockets 01-92, 14-28 and 10-90 earlier in the week. Under a Wireline Bureau clarification last June of the FCC's net neutrality and broadband reclassification order, the rate-of-return carriers said, "the revenues associated with the broadband internet access transmission would no longer be subject to the federal universal service fund assessment." FairPoint Communications made a similar move last year (see 1606280037).