Good afternoon, and thank you, Commissioner Gillis, for the kind introduction. I have always had great respect for you and the work of the Washington Commission in protecting consumers in that state. So it goes without saying that I would be glad to participate in any public forum that he organized. But when he told me that this particular conference would be held in New Mexico, well, I would have even skipped a Congressional oversight hearing to be here. Actually, I suppose that's stretching it just a bit. But I do very much appreciate the opportunity to join you today.
And I should add that, as a New Mexican, rural telecommunications issues are very important to me as a policymaker, because I know how much government policies can affect life for millions of rural Americans.
That's why I was glad to see that the title of this panel is "Issues Facing Rural Companies and Their Customers." At the FCC, it's easy to forget that we work for the American people, not the multibillion-dollar companies that lavish their attention on us. In my job, I try to remain focused on consumers and how each decision I make will affect the average consumer. As I confront policy decisions affecting rural companies, it's a little easier for me to remember that my work directly affects rural Americans simply because I'm from a rural state.
Public Policy Should Reflect Unique Circumstances of Rural LECs
Having that background, I know that federal and state policies need to reflect the specific circumstances of rural carriers and their customers. What I'd like to touch on today are just a few issues facing rural companies and their customers. Not surprisingly, these issues revolve around universal service.
What I would like to make clear is my belief that, in developing universal service policies, the FCC needs to focus to a greater degree specifically on rural customers served by truly rural carriers. There is a natural temptation for policymakers to just apply large carrier policies to small carriers as well. It saves time and resources, so why reinvent the wheel for rural companies? They're all incumbent LECs, right? How different can they be?
Actually, it's clear to me that rural telephone companies are different from large carriers. For instance, in rural areas, there are often just one or two businesses that are the principal buyers of telecommunications service. If the rural company loses one of those large customers to a competitor, that can have devastating consequences for the rural company. And those big customers are exactly the ones that competitors will target first. The FCC and state commissions need to be aware of how the loss of just one major customer can change the financial prospects for a rural carrier.
Another way that small rural carriers are different from the major LECs is their greater reliance on support mechanisms to keep their local rates low. That fact obviously derives from the kind of network needed to serve more dispersed populations. Thus a greater amount of support is needed to keep local rates affordable.
That being the case, it seems natural that policymakers would focus on universal service as it pertains to rural LECs. Yet most of the debate up to this point has involved not the rural LECs, but the largest LECs and their competitors. Undoubtedly that is due partly to the FCC's earlier timeframe for reforming universal service for large LECs. But what I don't want to see happen is for the FCC to feel like its universal service work is basically finished when it implements the new high cost mechanism for the large carriers.
It's not enough for us to tinker with our large LEC policies and apply them to rural LECs. Instead, we need to address the issue of universal service reform for rural LECs with a better understanding of the nature of rural companies. I believe the work of the Rural Task Force will be invaluable in helping us understand what will and won't work for rural companies. The FCC's universal service policies will have the most direct impact on customers served by rural carriers. We need to take care to understand rural carriers before changing the way they currently receive high cost support.
Upcoming Universal Service Decisions That Will Affect Rural Companies
In seeking to reform universal service for all carriers, the FCC is faced with some important procedural and substantive decisions. I'd like to offer some observations on a couple of those matters.
The first issue is a procedural one -- when should rural carriers begin the transition to a new scheme of universal service support? In 1997, the FCC said that the transition should occur no later than 2001. On this question of timing, I would add my voice to that of Chairman Kennard and say that the 2001 date is flexible in my mind - very flexible.
I believe it's important for the FCC not to lose sight of the fact that competition is the driver for a new system of universal service. Competition has emerged first in cities served by large LECs. So it makes sense that the FCC would address the question of support for large LECs first. Eventually we will need to deal with rural LECs as well. But at this point, I don't see a groundswell of competition in rural areas. So I would counsel against the FCC racing to "fix" a problem that hasn't yet developed. And, as I'm sure you know, there is no shortage of issues to keep the FCC busy in the foreseeable future.
Another issue that may greatly affect both rural and non-rural carriers alike is the 75/25 issue. For those of you unfamiliar with this issue - is there anyone in this room unfamiliar with 75/25? - it refers to the plan for the federal government to fund no more than 25 percent of the cost of universal service in the future.
When the 75/25 approach was first adopted, many Members of Congress and many state commissioners told us flat out that it wouldn't work. So I was very pleased that the FCC referred this issue back to the Joint Board. And, as a member of the Joint Board, I was also pleased to support the Joint Board recommendation that the FCC move away from the 75/25 approach.
Under the leadership of FCC Commissioner Susan Ness and Florida Commissioner Julia Johnson, the Joint Board recommended that the FCC discard the 75/25 approach, and instead rely on a more flexible model that considers the unique circumstances of each state in funding universal service. Essentially, the Joint Board said that the FCC needs to recognize that some states simply cannot be expected to bear 75 percent of high cost funding. I think that is a very sensible approach, and I will be a strong supporter of the more flexible approach when the full Commission takes up the Joint Board's recommendations.
I see the Joint Board's recommendations as a sign of the growing cooperation among federal regulators, state regulators, and Members of Congress. I hope that spirit of cooperation will continue in many other areas of telecommunications policy.
The final universal service issue I want to mention is also common to both rural and non-rural carriers. It's the issue of connecting unserved areas.
The problem of unserved areas has traditionally been handled at the state level. However, the 1996 Act codified, renewed and extended the FCC's universal service obligations. I think it is appropriate at this time to consider how the federal government can assist in connecting unserved areas.
As you have undoubtedly heard many times before, the 1996 Act directed the FCC not only to preserve universal service but also to advance it. That means to me that the FCC needs to be proactive in looking for ways not just to maintain the status quo, but to improve the current system. I believe the most immediate way we can actually advance universal service is to figure out ways to connect unserved areas.
Today, when a person in an unserved area wants to order service, that person often must pay the local phone company what are called "mileage charges" in order to have a line run to their property. Mileage charges can amount to thousands of dollars for a single line. That seems like a real problem to me. Most consumers are in no position to pay that kind of money just to get telephone service installed. That is particularly true in most rural areas where household income tends to be lower than in urban areas.
The unserved area problem is particularly acute for Indians living on reservations. We have to find ways to address the problem of unserved areas in the context of the federal system of universal service support. I don't think it's wise to immediately charge ahead with using federal money to instantly fund connections to unserved households who request service. But I do think the FCC and states need to develop a workable solution to this critical problem. The FCC also needs to look beyond wireline and explore wireless, satellite, and other spectrum-based options to address this.
Chairman Kennard and I were in New Mexico just a month ago for field hearings and site visits on telephone service to Indian reservations. We learned a great deal about the dire consequences when a person lacks access to basic telephone service. I know the Chairman shares my concern regarding unserved areas, particularly with regard to Indian reservations. I commend the Chairman's leadership on Indian telecommunications issues, and I know we will find a way to make a dent in the unserved areas problem.
Prospects for Success of FCC's Universal Service Policies for Customers of Rural Carriers
All of these issues I've just mentioned are complex and controversial. Come to think of it, there's not much relating to universal service that isn't complex and controversial, but that's what makes my job so challenging!
Nonetheless, I am actually quite optimistic that the FCC will ultimately do the right thing for all parties affected, including rural companies and their customers. I say that for two reasons. First, if the Joint Board's recommendation is adopted, the FCC will use a cost proxy model to determine the amount of support for non-rural LECs. At this point, it's safe to say that developing and implementing the model continues to be a real learning experience. For rural companies, the good news is that the FCC will gain valuable experience with the model it establishes for the large carriers. Based on that experience, we will have a better idea of whether or not the model would be right for rural carriers as well.
The second reason I'm optimistic about the ultimate success of our rural universal service reform is the composition of the Rural Task Force. Under the very able leadership of Bill Gillis, and the participation of Chris McLean among others, I am quite confident that the Task Force will present the Joint Board with sound and workable recommendations for preserving universal service in rural areas. I strongly encourage those of you interested in rural universal service issues to work closely with the Rural Task Force. Their recommendations will carry great weight with the Joint Board and the FCC.
There are many other issues that are important to rural carriers and their customer, but none more crucial than universal service. Thank you once again for inviting me to be with you today.