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Montana Telecommunications Association Commentary -AT&T Proposal to Stabilize the Universal Service Fund

Last month, I discussed the crisis facing the national universal service program, which is set up by law to ensure that all Americans, no matter where they live, have access to quality, affordable telecommunications services. Under the universal service program, consumers of interstate telecommunications services contribute to a universal service fund, which supports investment in high-cost telecommunications networks, such as those in Montana.

Without the universal service fund’s support to these high cost providers, the price of telephone service in Montana would increase by $300 to more than $600 a year. With the support of the universal service fund, rural Montana telecom providers have been able to invest in state-of-the-art telecommunications networks, which have deployed broadband capabilities nearly ubiquitously throughout their service areas and are investing today in next-generation technologies and services for Montana’s business and residential consumers.

Despite the tangible benefits of the universal service program to states like Montana, the universal service fund is in trouble. Not all providers of 2-way communications are contributing into the fund, causing diminishing revenues for the universal service fund. For example, internet-based phone service, a rapidly-growing segment of the overall voice communications market, is not required to contribute to universal service, even though Internet-voice service depends on the investment made in a national telecommunications infrastructure that is supported by universal service. And even worse, the distributions from the fund are skyrocketing out of control. As Kevin Martin, Chairman of the Federal Communications Commission, points out, “Today… we are subsidizing multiple competitors to provide voice services in rural areas.”

Virtually all of these new competitors receiving universal service support today are wireless providers. Payments to competitive, multiple providers of telephone service have been growing at a rate of 101% per year since 2002. Universal service support to wireless providers will have grown from $1 million in 2000 to over $1.5 BILLION by the end of this year, while support to wireline companies has remained flat, and even gone down in recent years. Moreover, wireless networks are cheaper to build, largely because they rely on the infrastructure built by wireline network providers. Yet, these wireless providers receive the same universal service support that wireline carriers receive. Thus, not only does the universal service fund support multiple providers of telephone service in the same areas, but it provides a windfall to the wireless recipients.

No wonder the system is broken.

A number of proposals have been advanced to fix universal service. One proposal in particular, offered by AT&T, presents an effective, interim solution. AT&T’s interim stabilization plan would immediately halt the approval of new universal service recipients and impose a freeze on the number of lines for which wireless carries would receive universal service support. While universal service may support a single wireline serving a household of four, it supports all four wireless “lines” for that same household if each family member has a wireless phone. The AT&T proposal also would reduce the amount of support received by wireless providers by an amount roughly equivalent to the portion of universal service support that represents the replacement of access charges that the wireless carriers never received in the first place. That is, universal service has absorbed regulatory cost shifts that resulted from the reduction of charges that wireline carriers charge other carriers to originate and terminate traffic on their networks. Wireless carriers never relied on these network access charges; but they reap the effect access charge replacement in the universal service support they receive. As AT&T points out, “carriers that have suffered no harm from the [FCC’s] access charge reform should not reap a…windfall from the relief specifically designed to minimize the impact of such reform [on wireline carriers].”

Further, the AT&T proposal would place a cap, for the first time, on wireless recipients of universal service. Wireline carriers’ support has been capped for years. In fact, the wireline cap has resulted in over $2.5 billion of foregone investment in wireline infrastructure. No such cap has applied to the wireless recipients of universal service.

AT&T’s proposal would not adversely affect the provision of quality affordable telecom service to consumers in rural areas. For years, wireless carriers have been reaping windfalls through universal service they receive on the unrelated costs of rural telecom carriers providing ubiquitous service throughout their service areas. Wireless carriers effectively have been receiving support for existing customers whom they have been successfully serving without any universal service support.

AT&T’s plan to freeze the number of supported wireless lines and reduce the support that wireless carriers receive is a logical first step in controlling the unnecessary growth in the universal service fund, while preserving the benefits of universal service.

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Contact:

Geoff Feiss, General Manager

Montana Telecommunications Association

406.442.4316

[email protected]

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