July 18, 1997
Re: In the Matters of Changes to the Board of Directors of the National Exchange Carrier
Association, Inc., Federal-State Joint Board on Universal Service, Report and Order
and Order on Reconsideration, CC Docket Nos. 97-21, 96-45
I respectfully dissent to today's Report and Order and Order on Reconsideration
involving changes to the Board of Directors of the National Exchange Carrier Association, Inc.
(NECA). While I remain fully committed to the success of the universal service support
mechanisms and specialized programs contained in our May 7, 1997 Universal Service Report
and Order (Universal Service Order), I object to this order because the majority casts aside the
Joint Board's November 1996 decision to entrust NECA as the temporary administrator of the
universal service program.(1) Instead, the majority adopts a cumbersome new structure that will
likely result in slower decision making and impose higher administrative costs on the Section
254(h) schools/library and rural health care programs. In addition, I have grave concerns
about the implementation time necessary for the corporate structure adopted today. From a
practical point of view, NECA does not have enough personnel to "loan" to USAC and the two
new corporations in the short term, while it searches for high quality, full time officers and
employees for the corporations. Given this late date, I fear the corporate structure chosen
today may seriously endanger a timely start for our schools/library and rural health care
Fiscal Responsibility for the Section 254(h) Programs Is Imperative
Throughout the implementation of the universal service provisions of the
Telecommunications Act of 1996 (1996 Act), I have repeatedly said that we must not forget
that "job one" is getting affordable, quality telephone service to every American household
across the nation.(2) To that end, our highest priority should be ensuring that our universal
service programs encourage the highest level of subscribership, using mechanisms such as high
cost assistance and low income programs, particularly for areas of chronically low
In Section 254(h) of the 1996 Act, Congress also asked that the Commission collect
money from every telecommunications carrier to fund two social programs to provide
discounted telecommunications service to schools, libraries and rural health care providers.
The benefits of such programs are clear.
In implementing Section 254(h), however, I believe we must balance our enthusiasm
for such social programs against a sober regard for how much the costs of those programs
mean to the basic telephone rates of an average consumer. If basic telephone rates go up
because of the Section 254(h) social programs, how does this impact our overriding goal of
achieving 100% subscribership in the underserved and unserved areas of the nation? While
improving telecommunications services to the education, library and the rural health care
communities is clearly an important goal, it is my view that our achievement of these social
programs must not come at the detriment of other consumers.
Thus, in light of these concerns, I believe we have a duty to be fiscally responsible in
our administration of the Section 254 support mechanisms. As to the Section 254(h) programs,
we should be conservative in the administrative procedures that we set up, and ensure that it is
efficient and nonburdensome. We must guard against waste, fraud and abuse by retaining
administrative oversight where necessary. And finally, it is imperative that we set up all our
procedures in a timely manner that allows the program to begin on January 1, 1998, as
provided for in our Universal Service Order.
Keeping It Simple
I dissent to this item because, instead of taking a conservative and cost conscious
approach, the majority has instead created an elaborate structure that is breathtaking in its
breadth and complexity. While I can see a few benefits to this structure, I do not find that they
outweigh the detriments, including increased costs of the corporate structure, increased
implementation time, and more difficult accountability due to a more convoluted structure.
My preference for the structure of the interim universal service administrator would
have been to have NECA establish USAC, and then form three subcommittees under USAC for
the schools/library, rural health care and high cost/low income programs. This simple
proposal, which was also NECA's preferred approach,(4) would have retained the benefits of
having individuals administer the schools/library and rural health care programs that have
"expertise" and a "direct stake in the success of the programs,"(5) but without the cumbersome
corporate structure mandated by the majority decision. This structure would also have
operated more efficiently by avoiding duplication of functions between the corporations and
minimizing the amount of coordination needed among the multiple companies. Accountability
is also retained in the subcommittee structure; each subcommittee would hire staff to run the
day-to-day operations and would report to the particular USAC Board members serving on that
subcommittee. These USAC Board members are responsible for the functions assigned to that
subcommittee and would be directly accountable to the FCC pursuant to our authority over
The majority, however, has taken a more complicated route. First, they have created a
large USAC Board consisting of 17 members. On this point, I would have preferred a smaller
USAC Board. A smaller board would have been vastly more efficient, because it could
achieve more nimble decision-making with lower administrative costs. Although I agree that
the USAC Board should be composed of a broad cross-section of interested parties, I do not
see the need for multiple members of certain industry groups or beneficiary groups, especially
in light of the fact that the decision makes clear that USAC's duties are limited to
administrative, non-substantive functions (such as billing and collection). Broad and fair
representation could have just as easily been achieved with fewer Board members.(6)
The Majority Plan May Be Impractical
I believe that the corporate structure adopted in this decision for operation of the
schools/libraries and rural health care programs may be impractical because of two basic
problems: cost and timing.
As to cost, I note that the Joint Board gave NECA the job of interim administrator
because NECA has past expertise in billing and collecting money for our existing low income
and high cost programs. The Joint Board (and subsequently the FCC) chose NECA because
we believed it could get the job done quickly, efficiently and by our deadline.(7) But today, the
majority changes the Joint Board's wise decision to give NECA the full responsibilities of
interim administrator and instead, sets up two new corporations to handle the majority of the
functions of the schools/library and rural health care programs.(8) I fear this unnecessary
corporate structure will prove to be costly at ratepayer expense.
Moreover, setting up and operating two separate corporations unquestionably will be
more costly than my proposed alternative of having a single USAC Board, with specialized
subcommittees directing the Section 254(h) programs. Typically, nonprofit corporations have
a Board of Directors and officers. Corporate officers often include a Chief Executive Officer
(CEO), a Chief Financial Officer (CFO), and a Corporate Secretary.(9) Moreover, a corporate
structure generally requires bylaws, articles of incorporation, the filing of annual reports, and
other corporate activities required by law.
In light of all the above, I believe that the significant expenditures necessary to establish
and maintain these two corporate structures may subject our programs to undue criticism, and
may eat up funds that could better be used towards discounts on telecommunications services,
Internet access, and internal connections by the schools, libraries and rural health care
The second problem with this structure is time. Time is of the essence given our firm
January 1, 1998, start date for the Section 254 programs.
At the outset, I must note my great disappointment that, even though the
Commissioners were promised this draft decision by mid-February, 1997, in order to have
time to consider these implementation issues carefully and still meet our start date for the
Section 254(h) programs, it was not until June 20, 1997, that the Chairman's Office released
the draft item for the full Commission's consideration. This delay has put significant time
pressure on the Commission to put out this decision, and unreasonable time pressures on
NECA to implement these changes, and put the mechanisms in place by our deadline.
In light of this delay on our part, it seems untenable that we are ordering NECA to
establish this complex corporate structure at this time, because this structure will probably take
more time to fully implement than we have at this moment. For example, I do not see how
qualified officers for the corporations can be located, hired and brought on board quickly
enough to begin our schools/library program by January 1, 1998.(10) With a $2.25 billion
program at stake, a top quality CEO and CFO must be carefully selected from among qualified
candidates. At a minimum, this executive search process will likely take several months. I see
no reason to create this problem and I fear that it may result in the program being delayed from
the current start date.
Given the importance of the Section 254(h) programs, this structure could be detrimental to the programs' success. Thus, I think we should have remained faithful to the recommendation of the Joint Board to give NECA the job of interim administrator, and we should have adopted a simpler structure utilizing subcommittees.
1. In the Matter of Federal-State Joint Board on Universal Service, CC Docket No. 96-45, Recommended Decision, 12 FCC Rcd 87, paras. 832-33 (1996)(Joint Board Recommended Decision); In the Matter of Federal-State Joint Board on Universal Service, CC Docket No. 96-45, Report and Order, para. 866 (released May 7, 1997).
2. Separate Statement of Commissioner Rachelle B. Chong, Concurring in Part, Dissenting in Part, Re: In the Matter of Federal-State Joint Board on Universal Service, CC Docket No. 96-45, at 6 (released May 7, 1997).
3. E.g., Native American tribal lands, very remote areas such as the Alaskan Bush, and insular areas such as Hawaii, the Commonwealth of the Northern Marianas Islands, Guam and Puerto Rico.
4. NECA ex parte letter, filed June 23, 1997.
5. Majority decision at para. 58.
6. It is unclear to me why information service providers (ISPs) are included on the USAC Board when ISPs are not mandatory contributors or beneficiaries to the universal service mechanisms, but are merely possible service providers to the Section 254(h) social programs. Others in a like position -- such as internal connection or "inside wire" providers -- were not given a seat on USAC, but have just as much interest in the proceeding as the ISPs.
7. Universal Service Order at para. 866; Joint Board Recommended Decision at paras. 832-33.
8. For example, the corporations have the functions of reviewing school and library applications and technology plans, creating and maintaining a web site, performing outreach and public education functions, reviewing bills for services, and submitting quarterly projections of demand and administrative expenses to the Commission.
9. Corporations also often retain an executive director to oversee day-to-day operations, not to mention a general counsel.
10. 10 To find a qualified CEO of the schools/library corporation, USAC will need to conduct an executive search, interview numerous candidates, extend an offer, and if the candidate accepts, wait for the new officer to transition from his or her current job, and then give the officer time to come up to speed on the Commission's relevant orders and other USAC implementation actions.