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May 27, 1999

Statement and Dissent in Part of
Chairman William E. Kennard
Federal-State Joint Board Recommendations
Regarding High-Cost Support for Non-Rural LECs

One of the most important parts of the Telecommunications Act of 1996 was the affirmation of the universal service principle. This principle has several applications, all of them based on the congressional committment that quality services should be available to all Americans at just, reasonable and affordable rates. Congress made clear that consumers in rural and other high-cost areas should have access to a wide variety of telecommunications and information services that are reasonably comparable to those available in urban areas, and at reasonably comparable rates.

Our responsibility to ensure that telecommunications services are reasonably comparable in all areas and available at just, reasonable, and affordable rates is one that we share with the states. This partnership works best when the Commission and state commissions work together. Today, we adopt a new framework for high-cost support for non-rural telephone companies based on recommendations from the Federal-State Joint Board on Universal Service. This action reflects the dedicated, unified effort of the Commission and state commissions in pursuit of common goals.

We conclude that a primary purpose of federal high-cost support mandated in section 254 of the Telecommunications Act is to ensure that states have the ability to achieve reasonably comparable rates within and among states. Accordingly, we adopt a mechanism that provides high-cost support based both on the costs of providing supported services and on the state's ability to support those costs using its own resources. We also adopt a "hold harmless" provision, which will ensure that the amount of support provided in each state will not be less than the current amount of explicit support provided in that state. Finally, we ask for comments on some issues related to the manner in which high-cost support should be calculated and distributed.

I not only support this Report and Order and Further Notice, I am proud of most of the decisions in this item. I do have one disagreement with the majority on this item, however. In paragraph 118 of the Further Notice, the Commission is seeking comment on an idea that high cost support might be distributed directly to state commissions rather than to carriers. Although one might imagine situations where such "block grants" might be appropriate or even desirable, I am confident that this is not such a situation. The Joint Board considered and rejected this idea, and for good reason. Federal support has traditionally been distributed directly to the carriers themselves. Under section 254 of the Act, support must ultimately go to carriers. Accordingly, the block grant idea amounts to a proposal to add an additional layer of administration, which is bound to increase costs and reduce efficiency. The states themselves are generally opposed to the idea as evidenced by the rejection of this idea by the Joint Board. Similarly a majority of the commenters in this proceeding, including many of the recipients of high-cost support are also opposed to the idea. In sum, block grants are not a good idea for high-cost support.