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Federal Communications Commission
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Washington, D.C. 20554
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Internet: http://www.fcc.gov

This is an unofficial announcement of Commission action. Release of the full text of a Commission order constitutes official action. See MCI v. FCC. 515 F 2d 385 (D.C. Circ 1974).

Report No. CC 97-24 COMMON CARRIER ACTION May 7, 1997


Adopts Plan to Ensure Access to Affordable Telecommunications Services for All Americans (CC Docket No. 96-45)

The Commission today implements the mandate for universal service set forth in the Telecommunications Act of 1996. The 1996 Act requires the Commission and the states to ensure that affordable, quality, telecommunications services are available to all Americans. Consistent with Congress's mandate, the Commission sets in motion universal service policies that will ensure all Americans, including low-income consumers and those who live in rural, insular, high cost areas, shall have affordable service and will help to connect eligible schools, libraries, and rural health care providers to the global telecommunications network. The new plan fully funds Congress's universal service goals, while ensuring adequate incentives for continued investment in the local telecommunications network. The Order also ensures that rural, small, and high cost telephone companies continue to receive the necessary universal service support.

In March 1996, pursuant to instructions from Congress, the Commission convened a federal-state Joint Board on universal service. After considering a 70,000-page record and holding seven public hearings at which more than 50 experts testified, the Joint Board issued its recommendations regarding implementation of the new federal universal service support mechanisms. Today the Commission has beaten its statutory deadline by adopting a plan for universal service reform that is comprehensive and complete. Today's Order is guided by and adopts, almost in their entirety, the Joint Board's recommendations and commits to continuing to work in close partnership with the states to create complementary federal and state universal service support mechanisms.

The Order adopts the following:


The 1996 Act enumerates seven principles that are to guide the Commission in establishing policies for the preservation of universal service. These principles include quality services at just,

reasonable, and affordable rates; access to advanced services; access in rural and high cost areas; equitable and nondiscriminatory contributions from all providers of telecommunications services;

specific and predictable support mechanisms; and access to advanced telecommunications services for schools, health care providers, and libraries. In addition, as recommended by the Joint Board, the Commission has adopted the additional principle of "competitive neutrality."

Services Included in Universal Service Support

Based on these principles, and guided by the recommendation of the Joint Board, the Commission finds that support should be provided for these services:

  1. voice grade access to the public switched network, with the ability to place and receive calls;

  2. Dual Tone Multifrequency (DTMF) signaling or its functional equivalent, also known as touch-tone service;

  3. single-party service;

  4. access to emergency services, including 911 and Enhanced 911 (which identifies a caller's location);

  5. access to operator services;

  6. access to interexchange services;

  7. access to directory assistance; and

  8. Lifeline and Link Up services for qualifying low-income consumers.

As recommended by the Joint Board, eligible carriers must offer each of the designated services in order to receive universal service support; transition periods will be available, however, for carriers currently unable to provide single-party service, Enhanced 911 service, and toll limitation services. In addition, all lines will continue to be supported. Finally, as recommended by the Joint Board, the Commission will convene a Federal-State Joint Board to review the definition of universal service on or before January 1, 2001.


Based on the Joint Board's recommendation, the Commission concludes that states should monitor rates and non-rate factors, such as subscribership levels, to ensure local telephone service remains affordable. The Commission agrees with the Joint Board, and finds that there is a correlation between subscribership and affordability, and recommends further joint examination by the Commission and the states of the factors that may contribute to low subscribership levels. The Commission plans to release a Public Notice seeking information on subscribership levels in insular areas.

Carriers Eligible for Universal Service Support

Consistent with the Joint Board's recommendation, the Commission concludes that any eligible telecommunications carrier, including, for example, wireless service providers, regardless of the technology they use, should be eligible to receive universal service support. The states have the statutory authority to designate carriers eligible to receive support. To be considered eligible under the Act, a carrier must be a common carrier; and the carrier must offer and advertise, throughout a designated service area, all of the services supported by universal service as described above.

Rural, Insular, and High Cost Areas

Also, consistent with the Joint Board's recommendation, the Commission finds that support for high cost areas should be based on forward-looking economic costs. The Commission finds that the cost methodologies presented thus far are not sufficiently reliable and, in June of this year, shall issue a Further Notice of Proposed Rulemaking seeking further information. The states may elect to use the Commission's forward-looking mechanisms or their own forward-looking cost studies for determining universal service support. States must indicate their intent to use the Commission's or their own methodology by August 15, 1997.

The Commission anticipates it will select a mechanism for determining support on a forward-looking basis, for non-rural carriers, by the end of 1997. By February 6, 1998, the states electing to use their own cost studies must file them with the Commission, and the Commission will evaluate them for consistency with its forward-looking criteria. By August 1998, the Commission will adopt the forward-looking mechanism and necessary inputs that will take effect on January 1, 1999.

Until the forward-looking mechanism takes effect, non-rural carriers will continue to receive high cost loop support and long term support based on existing universal service mechanisms. Consistent with the Joint Board's recommendation, rural carriers will continue to receive the full level of support they receive under the current mechanism, with some minor modifications. The Commission will continue to work with the Joint Board on the development of an appropriate forward-looking mechanism for rural carriers. The Commission also recommends that the Joint Board establish a rural task force that will consider development of forward-looking mechanisms for rural carriers.

Beginning on January 1, 1999, the responsibility for high cost support will continue to be split along current jurisdictional lines, with 25 percent of the difference between the forward-looking methodology's cost of service minus the national benchmark being funded by the Federal Universal Service Fund. In the interest of comity with the states, the Commission finds that states should be free to develop their own interstate programs. In addition, the Commission will refer this issue to the Joint Board for further review.

As recommended by the Joint Board, the Commission will also continue to explore the use of competitive bidding as a mechanism to provide universal service.

Programs for Low-Income Consumers

The Order modifies the Lifeline and Link Up programs, established by the Commission over a decade ago to assist low-income consumers, so that consumers in every state and territory can receive its benefits. Currently 44 states, including the District of Columbia and the U.S. Virgin Islands, participate in Lifeline, which reduces qualified low-income consumers' monthly phone charges with matching federal and state funds. Link Up provides federal support that reduces qualified low-income consumers' initial connection charges by up to one half and is currently funded by contributions from interexchange carriers. Link Up support is presently available only to wireline incumbent local exchange carriers.

The Commission has adopted the Joint Board's recommended changes to Lifeline and Link Up. It will:

  1. Expand Lifeline to make it available in every state, territory and commonwealth; increase the federal Lifeline support amount; and modify the state matching requirement. Each Lifeline consumer will receive $5.25 in federal support. The federal fund will also provide $1.00 of additional support for every $2.00 of support provided by the states, up to a maximum of $1.75 so that the maximum federal support would be $7.00.

  2. Make the contribution and distribution of low-income support competitively and technologically neutral by requiring all providers of interstate telecommunications services to contribute and allowing all eligible telecommunications carriers, including, for example, wireless carriers, to receive support for offering Lifeline and Link Up service.

Schools and Libraries

The Commission has adopted the Joint Board's recommendations for providing eligible schools and libraries discounts on the purchase of all commercially available telecommunications services, Internet access, and internal connections. Eligible schools and libraries will enjoy discounts ranging from 20% to 90%, with the higher discounts being provided to the most disadvantaged schools and libraries and those in high cost areas. Total expenditures for universal service support for schools and libraries is capped at $2.25 billion per year, with a roll-over into following years of funding authority, if necessary, for funds not disbursed in any given year.

Rural Health Care Providers

The Commission, consistent with the Joint Board recommendation, provides for all public and not-for-profit health care providers located in rural areas to receive universal service support, not to exceed an annual cap of $400 million. A health care provider may obtain telecommunications service at a transmission capacity up to and including 1.544 mbps, the bandwidth equivalent of a T-1 line, at rates comparable to those paid for similar services in the nearest urban area with more than 50,000 residents, within the state in which the rural health care provider is located.

Rural health care providers will receive support for both distance-based charges and a toll-free connection to an Internet service provider. Each health care provider that lacks toll-free access to an Internet service provider may also receive the lesser of 30 hours of Internet access at local calling rates per month or $180 per month in toll charge credits for toll charges imposed for connecting to the Internet.

Subscriber Line Charge and Carrier Common Line Charge

As the Joint Board recommended, and in light of concerns about affordability, the subscriber line charge (SLC) for primary residential and single-line business lines will not rise.

The Commission has also adopted the Joint Board's conclusion that Long Term Support (LTS) payments, which currently serve to equalize carrier common line (CCL) charges among incumbent local exchange carriers by lowering some and raising others, constitute an implicit support mechanism and therefore must be removed from CCL charges. This change has been made in the Commission's companion proceeding on access charge reform. Also consistent with the Joint Board's recommendation, rural exchange carriers receiving long term support will instead receive a comparable payment from the new universal support mechanism.

Administration of Universal Support Mechanisms

The Commission has adopted the Joint Board's recommendation that all telecommunications carriers that provide interstate telecommunications services contribute to universal service. In addition, the Commission finds that providers of interstate telecommunications on a non-common carrier basis and payphone aggregators should also contribute to the support mechanisms.

Consistent with the Joint Board, the Commission has adopted a contribution assessment methodology that is competitively neutral and easy to administer. Contributions will be assessed against end-user telecommunications revenues. The Commission has adopted the Joint Board's recommendation that support for the programs for schools, libraries, and rural health care providers be assessed based on interstate and intrastate telecommunications revenues.

Finally, the Commission has adopted the Joint Board's recommendation to appoint NECA as the temporary administrator of the support mechanisms. Consistent with the Joint Board, the Commission will also create a Federal Advisory Committee to recommend a neutral, third-party permanent administrator of the support mechanisms.

Action by the Commission May 7, 1997, by Report and Order (FCC 97-157). Chairman Hundt, Commissioners Quello and Ness, with Commissioner Chong approving in part and dissenting in part and Chairman Hundt, Commissioners Quello, Ness and Chong each issuing separate statements.

- FCC -

News Media contacts: Rochelle Cohen at (202) 418-0253 or Meribeth McCarrick at (202) 418-0256.

Common Carrier Bureau contacts: Mindy Ginsburg at (202) 418-7372 or Tim Peterson at (202) 418-1575.

Statement of Chairman

Reed E. Hundt

The Commission's votes today on items labelled universal service and access reform follow our vote last August on interconnection, and complete the trilogy of major actions implementing the 1996 Telecommunications Act. Many, many other decisions have been made on the way, but we plainly have reached the end of phase one of the Act: the replacement of pro-monopoly rules with pro-competition rules, while at the same time extending our country's commitment to provide affordable telecommnications access to all consumers, kids, teachers, patients, and doctors.

It has been a long, wide-ranging trip for the Commission since the Act was signed in February 1996. Congress asked us to overhaul in its entirety the national policies that apply to the communications industry. We have received nearly 200,000 pages of comments, millions of Internet "hits," hundreds of thousands of emails, thousands of letters written by working men and women on kitchen tables late at night, and had hundreds of meetings with teachers, doctors, Congressmen, Senators, lobbyists, lawyers, businesspersons, and citizens. The dedicated civil servants at the agency have worked impossibly long hours and made many, many personal sacrifices. I am immensely grateful to them, and the country owes them a tremendous debt.

The work has been arduous, but it has been a joy. Throughout the process we have believed that Congress gave us a high calling --write the policies for the communications sector that will lead America into the 21st century -- and we have considered it a privilege to play our part.

Today's items mark the end of the beginning of our deregulatory, procompetitive rule-writing.

By our decisions today we

--assure that local basic residential telephone service prices need not be increased by any action of the Commission or Congress, although industry achieved consensus in urging us specifically to increase local service prices by raising the residential subscriber line charge.

--guarantee that long distance prices will fall, and specifically that basic schedule customers will see their first general price decreases since 1989.

--generate economic benefits to business and residential consumers exceeding $25 billion during the next five years (making this the single best day for consumers in this agency's history).

--begin to reduce unnecessary subsidies on multiple phone lines.

--mark the beginning of a new policy for a national data network that is based on the fundamental precept that Internet services could be in a "subsidy-free zone" -- such that internet communication neither relies on nor gives a subsidy.

--assure that all rural telephone companies will be supported in their mission of assuring affordable service to all Americans in high cost areas.

--craft an interstate access pricing policy that invites a greater breadth of competitive entry into the local exchange market.

--create a funding mechanism that will combine national and state monies to connect every classroom in the country to the information highway.

--connect every rural health care facility in the country to the information highway.

I have attached to this statement certain representative models of the impact of today's votes on certain customers. There is no guarantee that every consumer will believe that he or she is better off as a result of today's decisions. I firmly believe, however, that as a result of today's decisions the overwhelming majority will buy more communications services with their money or will pay less for the same services they buy today. As competition makes more significant inroads in telecommunications markets these results will be increasingly dramatic.

I believe further that the replacement of the regime of monopoly with the new paradigm of competition will lead to productivity gains, job growth, investment increases,and the continuing vitality of the American economy. It is not too much to hope that our commitment to a de-regulatory, pro-competitive rule of law in our communications sector will play a significant role in persuading all nations to take this step. The triumph of the World Trade Organization negotiations on telecommunications in February makes this hope, in my view, a substantial likelihood. We can all dream that as a result world economic growth -- driven by the spread of an accessible, ubiquitous communications network -- is on the verge of massive acceleration. Nothing could be more inspiring than the vision of major progress in the global fight against poverty, disease, and misery. Nothing less than that is at stake in our effort to spark sustained, significant, competition-driven growth in our communications and information sector, as ordered by Congress in the landmark Telecommunicatons Act of 1996.

On a personal note, many years ago I had a conversation with then-Senator Al Gore about his wish to see a schoolgirl in Carthage, Tennessee be able to learn from the limitless resources of the Library of Congress, without being barred by time, distance, and lack of money from such opportunities. He explained to me -- and this was long before the Internet was invented -- that fiber optic cable would make the connection between the schoolgirl and a bright future.

From this conversation came this Commission's desire to include classroom connections as an essential goal of universal service. President Clinton in several State of the Union speeches and many other appearances mobilized a national commitment to this goal. And as Vice President, Al Gore has never let a week, or perhaps a day, go by without working to bring to every schoolchild the opportunity to learn on the information highway -- a term he coined.

Thanks to the untiring efforts of Senators Snowe, Rockefeller, Exxon, Kerrey, Hollings, Congressman Markey, Secretary of Education Riley, and many others the Commission was given the legislative mandate to fund connections to every one of two million classrooms in all 100,000 schools in our country. School groups from all over the country supported these congressional initiatives and then pursued their implementation in our rules.

Today, at last, after three and one-half years of work, we can say that we have by law and rule a fully funded national commitment and national plan to connect every classroom to the information highway. We recognize that curriculum reform, teacher training, computer acquisition, software development, private foundation guidance, and much else remains to be done in order to bring the benefits of the communications revolution to the students and teachers of America.

Yet we are proud we have come this far. The Commission has delivered the result our children deserve, and I am completely delighted to have been a part of this process.

I want to acknowledge with a depth of gratitude and respect that words cannot express to all the colleagues and friends inside and outside the Commission who have helped us find our way in these decisions. Others will forgive me if I mention here only those who have been associated with my personal office team on these items: Blair Levin,John Nakahata, Karen Brinkmann, Ruth Milkman, Diane Cornell, Renee Licht, Jackie Chorney, Julius Genachowski, Tom Boasberg, Ruth Dancey, Cozette Ballestros, Monica Lizama, Aiysha Coates, Vanessa Lemme, Judith Mann, Terry Matsumoto, Laverne Braddy . It has been an enormous pleasure and honor to work with you.

May 7, 1997

Statement of

Commissioner James H. Quello

(CC Docket No. 96-45),

ACCESS CHARGE REFORM (CC Docket No. 96-262), and

CARRIERS (CC Docket No. 94-1).

Today, the Commission has established rules to implement the Universal Service provisions of the Telecommunications Act of 1996, as well as rules to restructure the access charge system while also initiating reductions in the levels of those access charges. I have believed throughout my participation in the debates regarding universal service and access reform that, as much as possible, we should seek to ensure that consumers experience the benefits of our actions. To this same end, we should try to avoid the possibility that total bills for groups of consumers could increase as a result of implementing new universal service programs and moving into a new access charge regime.

Universal Service

This Commission now has taken steps to establish processes for the administration of universal service funds in a way that allows the commitments represented in this section of the 1996 Telecommunications Act to be fulfilled. We have labored to develop a reasonable plan that will provide necessary and sufficient funds for schools and libraries as well as other universal service programs. We also have sought to avoid collection of funds beyond those legitimately needed to help make new and important services available to students and teachers in inner city, suburban and rural schools from Takoma Park, D.C., to Tacoma, Washington, from McAllen, Texas to Mackinac Island on the Upper Peninsula of Michigan.

We have achieved this balance by establishing funding necessary to begin the program at a reasonable level, with a provision that allows schools and libraries to begin the program January 1, 1998. By this time, we would hope that participating groups will have had the opportunity to develop their plans. Our decision to start the program with lower funding in the first six months, increasing in the following years, gives the program early constraint, with flexibility at later periods when greater demand is likely to develop. As a result, I believe this decision provides for new universal service funding within the limits of what consumers around the country are willing to pay.

The issue of what consumers are prepared to pay has been a very difficult one. The need for our attention to the issue, however, has been clearly expressed in many ways. It has required the Commission to balance the need for programs involved in universal service that are critically important to the future of this country with their cost. In this respect, this universal service proceeding is one of the most important decisions in this agency's history. At the same time, we have heard a consistent message from around the country that consumers and businesses are not necessarily willing to pay for these services through higher total bills for telecommunications services.

With respect to funding for health care subsidies, we have endeavored to make sure that rural, non-profit health care facilities have sufficient funding to meet the needs for providing services in communities that otherwise might not have the same resources that are available in urban communities.

There also are many other policy and market issues that will need to be resolved in a new universal service environment. For instance, I believe it remains to be seen how cable and wireless industries will continue to develop to play a greater role in the telecommunications services that will meet future universal service needs. As these developments occur, the Commission may continue to monitor the equity of contribution and recovery of universal service funds by paging services as well as the extent to which wireless services in general should contribute for intrastate services.

Access Reform

The Commission's actions today on access reform involve two components: (1) several structural changes that will cause access components to move to more reasonable categories and to become subject to competition where possible; and (2) reductions in the current level of access charges, largely accomplished through revision of the productivity and sharing mechanism in LEC price caps.

Where this decision changes the structure of end user charges, as in our treatment of business and residential customers, and consumers with second or multiple lines, I believe our decisions should be -- and are -- characterized by balance. As a result of this necessary reform of the access payment structure, charges should remain within reasonable bounds and should help to promote the development of competition and consumer benefits.

I also believe this Commission would be remiss in our regulatory duties to the American public and responsibilities to our licensees if we were to restructure universal service without concurrently engaging in access charge reform. We have talked about this step for quite some time. Many parties have expressed their views in a very public fashion as to whether or not this step is warranted, or to what degree access charges should be reduced. I believe that this step to restructure and reduce the level of access charges is the right thing to do and this is the right time to do it.

The consumers and users of telecommunications services are the intended beneficiaries of today's actions regarding access reform. Now that these decisions are adopted, I believe it will become clear that we have done our best to ensure that consumers do not bear the burden of implementing the new universal service program and access charge reform. Our actions also represent a fundamental part of the Commission's effort to facilitate competition in the local exchange marketplace, in this case by reducing access charges paid to LECs by interexchange carriers.

The primary vehicle for this reduction is the decision to change the existing combinations of productivity factors, or "x-factors", and sharing options to a single productivity factor of 6.5% accompanied by no sharing obligation. As a result, this decision continues the Commission's efforts to move away from the lingering remnants of rate of return regulation for local exchange carriers. Today's decision will complete the movement of price cap LECs away from the sharing obligations that were part of the past system.

Looking to the Future

I want to emphasize that today's actions represent a first step in many respects.

Concerning universal service, this is not a day to declare victory. There is much left to be done by the Commission, the states, temporary and permanent fund administrators, school districts, libraries, health care facilities, parties developing cost models, and telecommunications companies seeking to provide services and enter new markets. This is definitely an important day, but the real effort is just beginning. That effort will require investment, planning, training in using services, and community, professional, and corporate involvement, and it will only be successful after the continuing involvement, in community after community, by the many parties who have so diligently participated in this proceeding.

The Commission's action to increase the productivity factor not only results in reduced access charges in the first year, but also in further reductions in access charges in subsequent years. In another respect, it may very well become necessary very soon for the Commission to consider how to supplement today's decision to allow for pricing flexibility by LECs as competition develops to a greater level in the local marketplace. One possible way to provide that flexibility might be through relaxing the 6.5% productivity factor where LECs can meet criteria to demonstrate sufficient competition.

At the same time, later steps might also include the potential for checks and balances in the event that competition in the local exchange marketplace does not develop as soon as some seem to expect. Once again, down the road the Commission may need to consider more specific measures to ensure that the platforms necessary for competition truly are available. It is my hope that those steps won't be necessary.

Finally, some parties have warned recently that any actions by this Commission to lower access charges may cause LECs to seek to raise local phone rates. That matter will become an issue for state commissions, and it is my hope that they will respond to any efforts to raise local rates by ensuring that consumers ultimately benefit from federal and state actions to implement the Telecommunications Act of 1996 and any related decisions.

May 7, 1997

Separate Statement
Commissioner Susan Ness

Re: Universal Service; Access Reform; Price Cap Review

Today we reach another milestone in our efforts to secure for consumers the myriad benefits made possible by the Telecommunications Act of 1996. We are steadfastly fulfilling the tasks assigned to us by Congress in a manner that will prove the wisdom -- and realize the vision -- of this landmark legislation.

Our pursuit has many facets. We must eliminate impediments to competition, ensure fair rules of engagement for all market participants, safeguard the interests of residential consumers, especially those with limited incomes and those in high cost areas, promote economic efficiency, and lower prices to consumers. Today's orders represent substantial progress on all these fronts.

Much of what we are doing is driven by law and by economics. But the results of our decisions have a human face:

Will a poor family in Appalachia be able to summon the police or fire department in an emergency?

Will a critically ill patient in a remote region of Montana have her tumor quickly and accurately diagnosed?

Will a curious high-school freshman have an opportunity to view Thomas Jefferson's valedictory letter, in his own aged but still powerful hand?

Will an elderly widow be less hesitant to break her loneliness with longer and more frequent calls to her great-grandchildren?

Today brings us closer to a day when these questions can all be answered "yes."

Fifteen months after enactment of the Telecommunications Act, the transition to a new industry paradigm remains far from complete. The road is not straight, or smooth, or free from peril. But a steady course -- and a shared determination -- can bring us to the desired destination.

We still have far to travel to resolve issues of support for high-cost areas. I believe we have a sound plan and a clear timetable for implementation, but we still face two main obstacles. The proxy models, already impressive feats of cost engineering, still require further refinement before they can reliably be used to target federal cost support. And a new consensus must be achieved before support essential to maintain affordable telephone service in high-cost states can be drawn from states with lesser need, as I believe the Congress of the United States clearly intended. In the meantime, we can make only incremental changes in the implicit subsidies that currently support the high-cost services provided by large price cap telephone companies.

For the smaller rural companies, change will come even more gradually. This is consistent with Congress's expectation that competition would arrive more quickly in the cities and the suburbs. In the interim, we recognize that rural economies must not face unnecessary dislocations.

The need to avoid harmful dislocations, while also encouraging beneficial change, is crucial to much of what we are doing in the access reform and price cap orders. We are implementing many changes that will help to ensure an orderly transition from monopoly to fair and efficient competition.

In particular, the recovery of more costs through flat-rated charges instead of usage-sensitive charges will reduce the exposure of incumbent telephone companies to "cherry-picking" by new entrants, even as they also expand the range of customers likely to be offered competitive alternatives. Completion of the conversion to a three-part rate structure for tandem-switched transport will eliminate a historical artifact, but allow time for affected carriers to adjust. The new X-factor more accurately reflects the productivity gains that can reasonably be expected from price cap carriers, while avoiding radical reduction of telephone company access revenues and proposals that would have unfairly penalized those companies that have most assiduously conducted themselves in accordance with the incentives we deliberately created.

We prefer to rely on marketplace forces rather than regulation to drive investment decisions and price reductions. Some will fault us for not acting more aggressively; others will complain that we are too heavy-handed. My own view is that each decision, and all of the many issues in these orders, has been approached with balance and sensitivity, fairness and principle.

Not everyone will be satisfied. But no one can say that we have not read the law, considered economic theories and business realities, consulted our consciences, and sought to achieve as much fairness as is humanly possible.

I readily confess that I cannot muster the same passion for restructuring the arcane and impenetrable Transport Interconnection Charge as for devising a completely new regime to provide discounts for schools and libraries to access telecommunications and information services. Though I am fully committed to full realization of all of the universal service provisions, the Snowe-Rockefeller-Exon-Kerry provisions reflect an especially bold vision. For our part, we have used our creativity to harness the magic of competition to reduce the costs of the support program, created incentives to ensure only prudent use of supported services, targeted discounts to minimize the danger of a widening gap between information haves and have-nots, and sought at every turn to maintain our commitment to competitive neutrality.

Even more important, we have sought to leave crucial decisions in the hands of educators and librarians, scattered throughout the country, rather than in the hands of Washington-based administrators. And, best of all, we have arranged a smooth take-off that will avoid creating unsustainable financial burdens on carriers and consumers, allowing competition and growth and declining prices -- rather than rate increases -- to supply the necessary funds.

In this area, as in the others addressed by today's orders, we have applied all our energy, and all our skill, to make the best decisions, based on our current knowledge and the law. A continuing commitment to constructive dialogue by all interested parties -- telephone companies, long distance companies, wireless companies, small businesses, large businesses, residential consumers, state regulators, and members of Congress -- is critical to continued progress. At the end of the day, fairness to all parties and demonstrable benefits to consumers are the standards by which we will all be judged.

Press Statement of FCC Commissioner Rachelle Chong
Re: Universal Service
May 7, 1997

Today, we answer Congress' call to restructure universal service in a way that will make sense in a competitive marketplace. I have always believed that job one of universal service is to try to connect every American to the telephone network. As a Nation, we currently enjoy 94% telephone subscribership, which is pretty darned good compared to most of the world. But, typical Americans, we always strive do better!

Universal telephone service is a worthy goal indeed, because telephones have become a practical necessity for our citizens. It is how we communicate, how we call for help in an emergency, and now, how we access the Internet and, through it, the entire world. Congress has asked us to do an important job -- to transform our current universal service system, and make explicit the many embedded implicit subsidies that exist in our federal system.

The universal service plan we set in motion today seeks to make our system compatible with competition. To this end, we introduce a plan that is competitively neutral. It will allow, for the first time, competitors to the local telephone companies to receive universal service support.

Contributions: We make the collection of universal service contributions more competitively neutral as well, by enlarging the sea of contributors into the universal service system. I have lodged a mild dissent on one contribution issue, however. I have dissented to the portion of the decision that requires carriers providing both interstate and international telecommunications services, to base their universal service contributions on international -- as well as interstate -- revenues. I believe this may disadvantage our U.S. carriers when they directly compete with foreign carriers for international service.

High Cost and Rural: We are not flash-cutting to a new universal service system in today's order. Although the Federal-State Joint Board had hoped to pick a high cost model by now, we have been unable to reach closure on this issue despite our best efforts. I am pleased, however, that we have committed to choosing a model for non-rural carriers as a platform by year's end. This will give us time to work out the remaining kinks and improve the model, so that it is ready for prime time when we launch our new system in 1999. During our transition period, rural consumers will continue to receive full support. We will be taking up the issue of whether a cost model or some other approach would be appropriate for rural carriers.

We hope that the states will continue to work closely with us on the cost model between now and year's end. I would like to recognize and thank the State Commissioners, the consumer representative, and their staffs for their excellent ongoing efforts on this challenging project.

Low Income, Insular and Unserved Areas: In keeping with Congress' mandate to make rates affordable, I support the program we adopt today to expand our existing Lifeline and Link-Up programs and make them available in all parts of the nation. I am especially pleased that we are making these low income programs available in insular areas such as American Samoa and CNMI.

Another problem I have focused on has been the low telephone subscribership rates in insular areas. To address this problem, we commit today to a Public Notice that seeks data on the affordability of service in insular areas.

Finally, I am also pleased that we have asked our state colleagues for further data on unserved areas in their jurisdictions. I am very concerned about these areas, and hope together, we can find a solution to make telephone service truly universal.

Schools/Libraries: I am pleased that we have generally remained true to the Joint Board commitments. We have agreed on a sensible start date of January 1, 1998. This date should give schools and libraries time to prepare for the program, give the states time to create a comparable intrastate discount program, and also give the new Interim Administrator time to gear up. I am also pleased that in implementing this program, we adopt a "pay as you go" mechanism. This should address concerns regarding overcollection of funds.

I also support the decision to provide schools and libraries with substantial discounts for internet access and internal connections. I think this will help prepare our children for the Information Age. Critical to my support of this piece of the schools and libraries program is that any type of provider -- both telecom carriers and nontelecom carriers -- can obtain universal service support for providing internet access and internal connections. This result is competitively neutral, and consistent with the Act's procompetitive mandate. Although I concur in the result, I would have used a different legal rationale to get there. I will discuss this in my separate statement.

Health Care: As to the other Section 254(h) program, I am pleased that we have agreed to kick off our rural health care initiative. While it is a measured approach to start, I think it will provide telemedicine out in rural America as Congress intended.