WPC/ 2c/ ZB0.JHP LaserJet 4 PlusHPPCL5MSXN\  PXPX0Í ÍX0Í ÍҫXN\  PXP(hH  Z 6Times New Roman RegularXSw6X@S@<6X9`("Courier NewTTSXN\  PXP\  `*Times New RomanTTX&G\  P&P\  `*Times New RomanTT&XN\  PXP\  `*Times New RomanTTXXN\  PXP\  `*Times New RomanTTX&G\  P&P\  `*Times New RomanTT&XN\  PXP(9 Z 6Times New Roman RegularXXN\  PXP\  `*Times New RomanTTXXN\  P XP(hH  Z 6Times New Roman RegularXXN\  P XP(9 Z 6Times New Roman RegularXXN\  P XP\  `*Times New RomanTTXT\  P P\  `*Times New RomanTTXN\  P XP\  `*Times New RomanTTXXN\  PXP\  `*Times New RomanTTXXN\  PXP\  `*Times New RomanTTXXN\  PXP(hH  Z 6Times New Roman RegularXXN\  PXP\  `*Times New RomanTTXXN\  PXP(hH  Z 6Times New Roman RegularXXN\  PXP\  `*Times New RomanTTXXN\  PXP(hH  Z 6Times New Roman RegularXXN\  PXP\  `*Times New RomanTTXXN\  PXP(9 Z 6Times New Roman RegularXXN\  PXP\  `*Times New RomanTTXXN\  PXP\  `*Times New RomanTTXXN\  PXP(hH  Z 6Times New Roman RegularXXN\  PXP\  `*Times New RomanTTXXN\  PXP(hH  Z 6Times New Roman RegularXXN\  PXP(9 Z 6Times New Roman RegularXXN\  PXP\  `*Times New RomanTTXXN\  PXP\  `*Times New RomanTTXXN\  PXP\  `*Times New RomanTTXXN\  P XP(9 Z 6Times New Roman RegularXXN\  P!XP(hH  Z 6Times New Roman RegularXXN\  P"XP\  `*Times New RomanTTXXN\  P#XP(9 Z 6Times New Roman RegularXXN\  P$XP\  `*Times New RomanTTXXN\  P%XP\  `*Times New RomanTTXXN\  P&XP(9 Z 6Times New Roman RegularXXN\  P'XP(hH  Z 6Times New Roman RegularXXN\  P(XP(9 Z 6Times New Roman RegularXXN\  P)XP\  `*Times New RomanTTXXN\  P*XP\  `*Times New RomanTTXXN\  P+XP(9 Z 6Times New Roman RegularXXN\  P,XP\  `*Times New RomanTTXXN\  P-XP(9 Z 6Times New Roman RegularXXN\  P.XP\  `*Times New RomanTTXXN\  P/XP(9 Z 6Times New Roman RegularXXN\  P0XP(9 Z 6Times New Roman RegularXXN\  P1XP(9 Z 6Times New Roman RegularXXN\  P2XP\  `*Times New RomanTTXXN\  P3XP\  `*Times New RomanTTXXN\  P4XP(hH  Z 6Times New Roman RegularXXN\  P5XP\  `*Times New RomanTTXXN\  P6XP\  `*Times New RomanTTXXN\  P7XP(hH  Z 6Times New Roman RegularXXN\  P8XP(hH  Z 6Times New Roman RegularXXN\  P9XP(9 Z 6Times New Roman RegularXXN\  P:XP(9 Z 6Times New Roman RegularXXN\  P;XP(9 Z 6Times New Roman RegularXXN\  P<XP(9 Z 6Times New Roman RegularXXN\  P=XP(9 Z 6Times New Roman RegularXXN\  P>XP(9 Z 6Times New Roman RegularXXN\  P?XP\  `*Times New RomanTTXT\  P@P\  `*Times New RomanTTXN\  PAXP\  `*Times New RomanTTXXN\  PBXP\  `*Times New RomanTTXXN\  PCXP\  `*Times New RomanTTXXN\  PDXP(hH  Z 6Times New Roman RegularX2//3|x#Sw6X@S@##XN\  PXP# R)#&G\  P&P# é  ı= &Before the FEDERAL COMMUNICATIONS COMMISSION  Washington, D.C. 20554 yhdddy ` `  hh#(-)pp2 In The Matter of hh#(-) ` `  hh#(-) FEDERALSTATE JOINT BOARD-)pp2CC Docket No. 9645 ON UNIVERSAL SERVICE (-)pp2(Report to Congress) ` `  hh#(-) yhdddy` `  hh#(- #XN\  PXP# { REPLY COMMENTS OF THE TELECOMMUNICATIONS RESELLERS ASSOCIATIONă ` ` The Telecommunications Resellers Association ("TRA"), through undersigned counsel and pursuant to Public Notice, DA 982 (released January 5, 1998) (the "Notice"), hereby replies to selected comments addressing the consistency of the Commission's implementation of the universal service provisions of the Telecommunications Act of 1996 ("Telecommunications Act") with the "plain language" of the statute.X0ÍX0Í#XN\  PXP#Í` ` Pub. L. No. 104104, 110 Stat. 56,  101(a), 102 (1996).#&G\  P&P#Ѷ Specifically, TRA endorses AT&T Corp.'s call for redesignation of amounts contributed to fund universal service support as mandatory enduser surcharges.X0Í ÍX0Í Íd#XN\  PXP#э` ` Comments of AT&T Corp. at 2 8.d In order to enhance #XN\  PXP#competitive neutrality, TRA also joins with AT&T in urging the Commission#XN\  P XP# to require all providers of telecommunications services, regardless of the transmission technology utilized by, or the nature of the core business of, such entities, to levy such surcharges on their customers. In the alternative, TRA concurs with those commenters that argue that the obligation to fund universal service support must be imposed equally on all providers of  H telecommunications services, again regardless of the transmission technology utilized by, or the nature of the core business of, such entities.#XN\  P XP#э` ` See, e.g., Comments of AT&T at 9 13; Comments of AirTouch Communications, Inc. at 23 33; Comments of the Senators Stevens and Burns; Comments of Rural Telephone Coalition at 10 17.  #XN\  P XP#) #T\  P P#I. $ARGUMENT#XN\  P XP# #XN\  PXP#у ` ` As TRA pointed out in its comments, the contributory scheme by which universal service support is being funded has proven to be neither competitively neutral, nor equitable and nondiscriminatory, as it applies to nonfacilitiesbased (and to a lesser extent, "switchbased") resale carriers; indeed nonfacilitiesbased resale carriers are bearing a disproportionate share of the financial burden associated with universal service funding. As TRA explained, many of TRA's nonfacilitiesbased and partially switchbased resale carriers#XN\  PXP# have not benefitted from either the limited access charge reductions produced by the Commission's access charge reforms or the elimination of such preexisting universal service funding requirements as the universal service fund and lifeline assistance assessments, because these savings have not been passed through to them by their interexchange network service providers. #XN\  PXP#Moreover, given that virtually all of TRA's resale carrier members operate pursuant to longterm contracts#XN\  PXP# which #XN\  PXP#generally provide for the "passthrough" of new governmental levies, as well as new or increased assessments by exchange access providers, but seldom require a like passthrough of decreases in access or other costs, many of TRA's #XN\  PXP#nonfacilitiesbased and partially switchbased resale carrier members will not benefit from any access or universal servicerelated cost savings until their existing one, two, three or more year contracts expire. Accordingly, the new universal service contributions, as well as the presubscribed interexchange carrier charges ("PICC"), represent "pure and simple" cost increases, without any offsetting reductions in costs for these small carriers. Obviously, while they await the expiration of their current multiyear contracts such carriers will be at a significant competitive and financial disadvantage a circumstance which is exacerbated not only by their size and resource limitations, but by the unique characteristics of their customer bases. ` ` TRA recommended that the Commission remedy this problem by #XN\  PXP#either (i) relieving nonfacilitiesbased resale carriers (and switchbased resale carriers to the extent their traffic is carried on a "switchless" basis) of the obligation to contribute to universal service funding, or (ii) requiring interexchange network service providers to immediately pass through savings associated with access charge reform and the restructuring of universal service funding to their resale carrier customers on a dollarfordollar basis. #XN\  PXP# Another means of achieving the same competitively neutral end is that suggested by AT&T in its comments, as well as in its earlierfiled petition for reconsideration.#XN\  PXP#э` ` Petition for Reconsideration filed by AT&T in CC Docket No. 9645 on July 11, 1997) at 2 8. #XN\  PXP# AT&T has recommended that the Commission fund universal service support through an explicit, mandatory enduser surcharge that would be assessed as a separate line item on all interstate telecommunications usage. ` ` T#XN\  PXP#he explicit, mandatory enduser surcharge proposed by AT&T would serve a number of public interest functions. First, #XN\  PXP#by eliminating at least one component of the dramatic cost increases nonfacilitiesbased and partially switchbased providers have experienced as a result of access charge/universal service reform#XN\  PXP#, it would help to "level the playing field" between nonfacilitiesbased and facilitiesbased providers#XN\  PXP#. Of course, the playing field would be completely leveled if the Commission were to mandate the immediate passthrough of all savings associated with access charge reform and the restructuring of universal service funding.#XN\  PXP#э` ` TRA's resale carrier members would of course support a mandatory passthrough to end users of the net reductions in access and universal servicerelated costs they received. #XN\  PXP# ` ` If levied by all entities that provide telecommunications services, regardless of the transmission technology utilized by them to transmit information or the nature of their "core" business,#XN\  PXP# #XN\  PXP#the AT&T explicit, mandatory enduser surcharge would also promote competitive neutrality among various technologies and market segments.n#XN\  P XP#э` ` #XN\  P!XP#An explicit, mandatory enduser surcharge#XN\  P"XP# would also enhance competitive neutrality visavis incumbent local exchange carriers#XN\  P#XP# which, as shown by AT&T, recover the vast bulk of their universal service support contributions through interstate access charges under the price cap system. See Comments of AT&T at 4. In other words, interexchange carrierss indirectly pay the incumbent local exchange carriers' ("LEC") contributions.n Obviously, with the emergence of internet voice telephony, as well as the rapid growth of internet facsimile and electronic mail, as viable alternatives to traditional interexchange service offerings, the importance of ensuring that regulation does not prefer one technology over another has increased measurably. Certainly, pricing differentials which are attributable to efficiencies related to technological capability are to be encouraged; the market obviously should reward innovation. Pricing differentials which are attributable solely to regulatory quirks, however, distort market performance. No competitor should prosper over another simply because it receives preferential regulatory treatment. ` ` Drawing a sharp distinction between basic and enhanced services made sense when those service categories were first developed in the early 1980s.X0ÍX0Í8#XN\  P$XP#Í` ` Amendment of Sections 64.702 of the Commission's Rules and Regulations (Second Computer Inquiry), 77 F.C.C.2d 384 (1980), recon. 84 F.C.C.2d 50 (1980), further recon. 88 F.C.C.2d 512 (1981), aff'd sub nom. Computer and Communications Industry Association v. FCC, 693 F.2d 198 (D.C.Cir. 1984), cert denied sub nom. Louisiana Public Service Commission v. FCC, 461 U.S. 938 (1983), further recon. FCC 84190 (released May 4,1984).8#XN\  P%XP# With the convergence of services and technologies in recent years, however, distinguishing among like services on the basis of their transmission medium distorts the market in ways the Commission could not have anticipated in creating the basic/enhanced dichotomy. Traditional industry distinctions are being blurred.X0Í ÍX0Í Í@#XN\  P&XP#э` ` Implementation of the Local Competition Provisions in the Telecommunications Act of 1996 (First Report and Order), 11 FCC Rcd. 15499,  4 (1996)#XN\  P'XP#, recon. 11 FCC Rcd. 13042 (1996), further recon. 11 FCC Rcd. 19738 (1996), further recon., FCC 97295 (Oct. 2, 1997), aff'd in part, vacated in part sub. nom. Iowa Utilities Board v. FCC, 120 F.3d 753 (1997), modified 1997 U.S. App. LEXIS 28652 (8th Cir. Oct. 14, 1997), pet. for cert. pending sub. nom AT&T Corp. v. Iowa Utilities Board (Nov. 17, 1997), pet. for rev. pending sub. nom., Southwestern Bell Telephone Co. v. FCC, Case No. 973389 (Sept. 5, 1997).#XN\  P(XP#@ If "voiceoverthenet" offers the same functional capabilities as standard voice service, requiring the latter but not the former to contribute to universal service funding provides the former with a wholly unwarranted price advantage. While delivery of voice telephony over the Internet does require protocol processing, no enhanced value is being added thereby; the service provided is still basic voice telephony. As the Commission has recognized, at least in spirit, protocol conversions that are used "merely to facilitate provision of an overall basic service" should be treated as basic, not enhanced, services.X0ÍX0Í- #XN\  P)XP#Í` ` Independent Data Communications Manufacturers Association, Inc.: Petition for Declaratory Ruling that AT&T's InterSpan Frame Relay Service is a Basic Service, 10 FCC Rcd. 13717,  1118 (1995)).-#XN\  P*XP# And the Commission has classified as "adjunct to basic" and treated as basic for regulatory purposes, services that "might indeed fall within possible literal readings of our definition of an enhanced service, but which are clearly 'basic' in purpose and use."X0Í ÍX0Í Í #XN\  P+XP#э` `  North American Telecommunications Association Petition for Declaratory Ruling Under  64.702 of the Commission's Rules Regarding the Integration of Centrex, Enhanced Services, and Customer Premises Equipment, 101 F.C.C.2d 349,  24 (1985).#XN\  P,XP# #XN\  P-XP#ѓ#XN\  P.XP# ` ` Likewise, exemptions granted to systems integrators that derive less than five percent of their system integration revenues from telecommunications resale also distort the market.I #XN\  P/XP#э` ` Other exemptions granted by the Commission also have market distorting impacts, but these additional exemptions are generally supported by a public interest rationale. Thus, relieving nonprofit schools, colleges, universities, libraries and health care providers of the obligation to fund universal service can be justified as necessary to further the "educational goals of the universal service support mechanisms." Likewise, the de minimis exemption from universal service funding obligations provided to the smallest providers is warranted because "the public interest would not be served if compliance costs associated with contributing to universal service were to exceed actual contribution amounts." FederalState Joint Board on Universal Service (Report and Order), 12 FCC Rcd. 8776,  284, 295 (1997), recon. CC Docket No. 9645, FCC 97420,  46. (1997), pet. for rev. pending sub. nom. Texas Office of Public Utility Counsel v. FCC, No. 9760421 (5th Cir., June 24, 1997). I There is no basis for the Commission's assumption that "systems integrators that obtain a de minimis amount of their revenues from the resale of telecommunications do not significantly compete with common carriers that are required to contribute to universal service."Z #XN\  P0XP#э` ` Id. at  279.Z As the Commission acknowledges, "[s]ystems integrators purchase telecommunications from telecommunications carriers and resell those services to their customers"Z #XN\  P1XP#э` ` Id. at  278.Z much like TRA's resale carrier members. A customer's decision to incorporate#XN\  P2XP# telecommunications into the package of services it takes from a systems integrator may well turn on the price at which the systems integrator's telecommunications offering is set. By exempting systems integrators from contributing to universal service support, the Commission has afforded these entities, many of whom are substantially larger than the typical TRA resale carrier member, a decided pricing advantage. #XN\  P3XP# ` ` As the Commission has repeatedly stated, regulation should "promote competition, not protect certain competitors."X0ÍX0Í#XN\  P4XP#` ` Access Charge Reform (First Report and Order), CC Docket No. 96262, FCC 97158,  180 (1997), recon. 12 FCC Rcd. 10119 (1997), second recon. CC Docket No. 96262, FCC 97368 (Oct. 9, 1997), pet for stay denied FCC 97216 (June 18, 1997), pet. for rev. pending Southwestern Bell Telephone Company v. FCC, Case No. 972620 (and consol. cases) (8th Cir. June 16, 1997).#XN\  P5XP# "[A] firm's prowess in satisfying consumer demand," not preferred regulatory treatment, should "determine its success or failure in the marketplace."%#XN\  P6XP#Í` ` Implementation of the Local Competition Provisions in the Telecommunications Act of 1996 (Notice of Proposed Rulemaking), 11 FCC Rcd. 14171,  1 (1996).#XN\  P7XP#% #XN\  P8XP# Indeed, in "reforming the collection and distribution of universal service funds," the Commission sought to ensure that the goals of affordable service and access to advanced services are met by means that enhance, rather than distort competition."X0Í ÍX0Í Í#XN\  P9XP#э` ` Implementation of the Local Competition Provisions in the Telecommunications Act of 1996 (First Report and Order), 11 FCC Rcd. 15499 at  7. As the Commission recognized in adopting "'competitive neutrality' as an additional principle upon which . . . policies for the preservation and advancement of universal service [were based]," competitive neutrality ensures that "no entity receives an unfair competitive advantage that may skew the marketplace or inhibit competition."#XN\  P:XP#э` ` FederalState Joint Board on Universal Service (Report and Order), 12 FCC Rcd. 8776 at  855. In fact, the Commission emphasized that the preexisting universal service system was incompatible with the procompetitive purposes of the Telecommunications Act because it "distort[ed] competition" by subsidizing only selected industry participants.#XN\  P;XP#э` ` Implementation of the Local Competition Provisions in the Telecommunications Act of 1996 (First Report and Order), 11 FCC Rcd. 15499 at  5. ` ` Finally, funding of universal service support mechansims through explicit, mandatory enduser surcharges is consistent with the Congressional mandate that "universal service support should be explicit."#XN\  P<XP#э` ` FederalState Joint Board on Universal Service (Report and Order), 12 FCC Rcd. 8776 at  750. As directed by the Congress, "any support mechanism continued or created under new section 254 should be explicit, rather than implicit as many support mechanisms are today."#XN\  P=XP#э` ` Joint Explanatory Statement of the Committee of the Conference, H.R. Rep. No. 458, 104th Cong., 2d Sess., 131 (1996). Certainly, an explicit, mandatory enduser surcharge levied equally on all consumers satisfies this mandate better than a carrier assessment which most likely will be passed through unevenly and may well not clearly identify its purpose. ` ` In the event that it declines to adopt AT&T's recommendation that it fund universal service through explicit, mandatory enduser surcharges, the Commission should at least extend the principle of competitive neutrality in the manner discussed above. Certainly, the Commission should extend the obligation to fund universal service support to all providers of telecommunications services, regardless of the transmission technology utilized by, or the nature of the core business of, such entities. As discussed above, technological or businessbased distinctions which result in regulatory preferences for select categories of services or service providers create market distortions as traditional industry distinctions are eroded by technological and market forces. TRA urges the Commission to heed its own wellchosen words and "reform[] the collection and distribution of universal service funds" in a manner that "enhance[s], rather than distort[s] competition."#XN\  P>XP#э` ` Implementation of the Local Competition Provisions in the Telecommunications Act of 1996 (First Report and Order), 11 FCC Rcd. 15499 at  7. Allowing providers of services such as "voiceoverthenet" to avoid contributing to universal service support creates just such a market distortion, affording providers of this service a pricing advantage unrelated to their service capabilities. #XN\  P?XP# h)#T\  P@P#II. #CONCLUSION #XN\  PAXP#ă ` ` By reason of the foregoing, the Telecommunications Resellers Association#XN\  PBXP# urges the Commission to address the matters discussed herein and in TRA's earlierfiled comments in its report to Congress on the consistency of its implementation of the universal service provisions of the Telecommunications Act with the "plain language" of the statute.#XN\  PCXP# ` `  hh#Respectfully submitted, ` `  hh# TELECOMMUNICATIONS ` `  hh#RESELLERS ASSOCIATION  ` `  hh#By:_______________________________________ ` `  hh#(Charles C. Hunter ` `  hh#(Catherine M. Hannan ` `  hh#(HUNTER COMMUNICATIONS LAW GROUP ` `  hh#(1620 I Street, N.W. ` `  hh#(Suite 701 ` `  hh#(Washington, D.C. 20006 ` `  hh#((202) 2932500 February 6, 1998 hh#(Its Attorneys#XN\  PDXP#