The current rate (which changes quarterly) is 10.2 percent of a carrier’s interstate and international revenues. The FCC allows – but does not require – contributors to pass their contribution costs on to their customers in the form of billed charges, sometimes referred to in customer bills as the Federal Universal Service Fee or Universal Connectivity Fee.
10.2% of revenue.........
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What’s Next for the Universal Service Fund?
By Josh Long
The rules governing the Universal Service Fund (USF) are in limbo. But we may see some new movement on this front starting this fall.
The FCC “is going to need to figure out a permanent fix,” and Congress may step in to revise Section 254 of the Telecommunications Act of 1996, the part of the law relating to the USF, says Bob Blau, vice president of executive and federal regulatory affairs with BellSouth Corp. Blau is not merely opining. One U.S. senator influencing telecom policy said he plans to introduce legislation in the fall.
“We need to do something to protect the longterm viability of this program,” says Sen. Conrad Burns (R-Mont.), chairman of the senate communications subcommittee. “The current revenue base needs to be broadened and we need to strengthen the overall program to reflect today’s changing telecommunications market,” says the senator, who noted plans to introduce legislation in the fall “for comprehensive reform of the Universal Service Fund.”
For the uninitiated, the USF is the giant pot of money used to expand telecommunications services to schools, libraries, rural areas and other regions where it is expensive to install telephone lines and related network gear to homes and businesses. The fund is under immense pressure as service providers morph into different beings, and revolutions in technology, such as the predominance of the Internet and wireless, bring into question what services should be universally available.
The FCC has initiated a multitude of federal proceedings to preserve the fund. Among the more notable cases is the proceeding tailored to determine the method by which carriers must contribute to the fund. Late last year, the federal regulator proposed companies contribute to the fund based on the number of network connections they manage.
The FCC says many parties favor a connection-based contribution method, but there are disagreements over the particulars. Case in point: If Qwest Communications International Inc. is providing local phone service to a family while AT&T Corp. is the chosen long-distance carrier, should both companies be responsible for contributing to the fund, or just Qwest?
In a May recommendation to the FCC, state members of the Federal-State Joint Board on Universal Service suggested basing contributions on revenue, including intrastate telecommunications revenue. “This will promote fairness and competitive neutrality, and will simplify the contribution process for consumers and carriers,” the state members, including Montana Public Service Commission Chairman Bob Rowe, wrote in the letter to the FCC.
FCC spokesman Michael Balmoris says the commission is expected to vote on the methodology proceeding in 2004.
To date, telephone companies have contributed to the fund based on interstate and international end user revenue, but the FCC says it is becoming increasingly difficult to distinguish interstate revenue as more consumers purchase local and long-distance communications packages.
Moreover, the amount of wireline interstate revenue companies collect is shrinking, prompting the FCC to increase the amount wireless carriers must contribute to the fund. The FCC increased the percentage of revenue wireless carriers must classify as interstate revenue from 15 percent to 28.5 percent.
The percentage of revenue dedicated to the USF from landline carriers has grown from 4 percent in 1996 to 9.5 percent in the third quarter, says Blau.
“The contribution factor has gone up… because in part the interstate and international revenue base has decreased,” says Lori Wright, associate counsel with MCI.
Yet the fund is still under duress as more companies seek to share the pot of money.
For example, wireless carriers are increasingly seeking so-called eligible telecommunications licenses (ETC), allowing them to acquire licenses in rural areas and draw money from the fund: a source of ire for companies such as the Bell operators and tribal-run telephone providers, who grouse they invested mountains of money to provide ubiquitous service in high-cost areas.
In November 2002, the FCC released an order requesting the Federal-State Joint Board on Universal Service review certain ETC rules. The public submitted comments to the joint board this year. Once the FCC receives the joint board recommendation, which is expected in the fall or winter, the commissioners will have one year to issue an order, says the FCC’s Balmoris.
In another proceeding that will impact the federal fund, the FCC is set to rule on whether to classify DSL as an information service. DSL today is classified as a telecommunications service. This is an important distinction because a company providing an information service, i.e., cable modem, is not required to contribute to the fund. In contrast, wholesale DSL revenue is subject to USF contributions.
The FCC is expected to vote on regulations this fall, although there are several outstanding proceedings that may impact the DSL decision.
Last year, the Universal Service Administration Co. (USAC), the agency designated by the FCC to administer the fund, collected about $5.27 billion from 2,174 service providers and dispersed approximately $5.3 billion. According to USAC, delinquent accounts receivable on USF obligations represented .24 percent of the total amount billed to carriers since 1998. The agency had a delinquent balance of approximately $56.3 million as of Dec. 31, 2002.
Although the delinquent balance is paltry compared to the bad debt telecom companies stuck their investors with over the last three years, USAC has announced plans to implement new collection procedures. The procedures were set to take effect in July. If a balance is 30 days past due and USAC is unable to resolve the matter, the agency will transfer the debt to the FCC for collection and enforcement. If the debt is not received 30 days after the FCC issues a request for payment, the regulator will transfer the debt to the U.S. Treasury, according to USAC.
THERE DOES NOT APPEAR TO BE A LID ON THIS TAX. AS MORE MONEY NEEDS TO BE SPENT, THEY RAISE THE TAX. WHO IS IN CHARGE OF THIS? I guess, I have been asleep at the switch.