Dissenting Statement of Commissioner Harold Furchtgott-Roth

Re: Universal Service, Third Order on Reconsideration

Slightly less than two years ago, Congress passed, and President Clinton signed into law, the Telecommunications Act of 1996, certainly the most important change in American communications law in more than two generations. It was not merely a change in law; it was a change in the fundamental relationships among business, government, and consumers of communications services.

The Past

Before, the government was the omnipresent intermediary between consumer and business. It was the government who told consumers from which business they could purchase which services. It was the government that told businesses which services they could provide to which customers.

In a regulated market without competition, there was little reason for consumers to be well informed. What good is information to a consumer who has no choice?

The Present

No more. Today, under the Telecommunications Act of 1996, telecommunications consumers, not government intermediaries, are sovereign. It is consumers, not government agencies, that have the legal right to choose their service providers. It is the market, rather than government regulations, that will ultimately govern prices and the quality and availability of services to telecommunications consumers.

The Telecommunications Act of 1996 does more than just open up markets to competition; it also formalizes a system of universal service. Competition benefits all consumers, and Section 254 of the Act attempts to ensure that the benefits of competition--innovation, higher quality of service, and lower prices--are available to all consumers, including those in high cost areas, schools and libraries, and rural health care facilities. The benefits of Section 254 are intended for consumers, and it is therefore particularly important that the regulations implementing Section 254 be subject to notice and comment by consumers and not by just a small, select group of businesses.

One of the hallmarks of competitive markets is that information is priceless to consumers. Informed consumers spend their money wisely and search for lower prices and higher quality services. Providers that can reduce costs and innovate flourish. Providers that

cannot go out of business. In a competitive market, government should never restrict the access to, or discourage the free flow of, information to consumers.

The Proposed Universal Service Contribution Factors

On November 13, 1997, the Common Carrier Bureau issued a notice of universal service contribution rates for the first quarter of 1998. I requested, and the other Commissioners agreed to, a one-week delay in the effectiveness of the contribution rates. It was subsequently extended until December 16, 1997.

In my view, the November 13 Notice presents more questions than answers about the previously established universal service rules. Why is there more than one federal universal service fund? Why are some funds based on both interstate and intrastate revenues, while others on just interstate revenues? Why are the definitions of telecommunications services for schools and libraries narrowly defined for contributors but broadly defined for recipients? What is significant about January 1, 1998 as a date to begin schools and library funding? Why is the size of schools and libraries funds essentially the same as for high cost funds? Why are the administrative costs for the schools and libraries program relatively high? Why are the salaries for administrators of the schools and libraries program so high, and yet an up-to-date budget for the organization so unavailable?

Some of these issues were partially addressed in the Commission's May 8 Report and Order, but it was clear from my confirmation process that few if any Senators were entirely pleased with the Commission's decisions on universal service. During the confirmation process, I promised to work to try to improve the Commission's interpretations of universal service; I did not promise to rubber stamp past Commission decisions on universal service.

Consumers should be the ultimate beneficiaries of competitive market forces. In a competitive market, reduced costs lead to reduced prices, and consumers benefit. Over the past two decades, costs of long-distance services have fallen, and prices paid by consumers have fallen as well. Informed consumers simply will not pay more than they must. Without government interference, that is how all competitive markets work.

The Current Order

There is a disturbing theme that underlies the universal service order adopted today by the majority of the Commission, as well as the former Commission Order of May 8. Based on these Orders, any reductions in access charges resulting from Commission actions in other proceedings will not lead to any reduction in costs and prices for long-distance services. Instead, those reductions translate entirely into increased universal service contributions. One set of government-set charges goes down, another goes up, and consumers are left in the dark.

The November 13 Notice embodied Universal Service Fund caps from the May 8 Order, which in turn were based on recommendations from the Joint Board on Universal Service. I do not fully agree with the caps in the May 8 Order. For example, I believe that the amounts to be collected for schools and libraries were too high and would stifle lower prices for consumers. But at least the factors in the November 13 Notice, derived from the May 8 Order, have a written record as a basis. And they are based on full public notice and comment.

The same cannot be said for the Third Order on Reconsideration and the First Quarter 1998 Universal Service Contribution Factors Revised Public Notice released today. Between November 13 and now, the Commission acknowledges no additional information specifically on which it has based its altered order and altered contribution factors. And now the results of the altered numbers are not to be subject to public notice and comment before they become effective.

The integrity of the Commission must be maintained in all of its proceedings, and most particularly in universal service proceedings. Section 254(d) requires that "every telecommunications carrier that provides interstate telecommunications services" contribute to federal universal service mechanisms. Surely, universal service fund contribution rates must be based on a detached review of a public record, rather than negotiations with an individual firm, or even a group of firms. It has been reported, however, that the Commission has "decided to reduce the charges after the carriers said the fee could lead to higher rates and after AT&T and MCI threatened to specify the charge on the bills they send to customers." Fund to Aid Technology in Schools Facing Big FCC Cuts, New York Times, December 15, 1997 at D-1. Apparently, "the agency worried that if millions of Americans began seeing such fees on their bills, popular support for deregulating the telecommunications industry could begin to erode." Id.

On Monday December 8, Communications Daily first reported that the "Commission prefers that they [universal service costs] be rolled into rates." I do not share such a preference or endorse such efforts. Moreover, I am aware of no statutory authority for the Commission to restrict or limit the content of billing information between a carrier and its customers. Indeed, Section 254(e) requires that funding mechanisms for universal service must be explicit. No carrier should have its billing information restricted or limited by the Commission. Despite this clear mandate for fully informing consumers, however, "[t]he administration, which has touted the program as the centerpiece of President Clinton's education goals, would rather that customers not know." Itemized list of phone fees hotly debated, USA Today December 15, 1997 at B-12. Moreover, it has been reported that "the FCC . . . ha[s] been pushing hard to get major long-distance carriers to agree not to put line-item charges on residential phone bills at least until July." FCC Postpones Ruling on Internet Connections, Washington Post, December 13, 1997 at F-9. I cannot endorse such efforts to "mask this for a while, to take some pressure off from the Hill," id., and object to such a deception being perpetrated on the American consumer.

I was not a party to these negotiations. I suspect that hundreds of millions of American consumers were not a party either. I am reluctant to support any new fees or taxes on consumers; I will never support any new fees or taxes negotiated in secret, without public notice and comment.

This Order, along with the accompanying Bureau Public Notice, also affirms the administrative expenses as proposed by the Universal Service Administrative Company (USAC). The Schools and Libraries Corporation and the Rural Health Care Corporation are each allocated more than twice as much money to administer certain aspects of those support mechanisms than is allocated to administer the substantially larger High Cost Fund. I cannot endorse this disparity, while knowing that many members of Congress are equally concerned with High Cost areas as with Schools and Libraries and Rural Health Care.

Preserving Universal Service and Fulfilling Section 254

I am committed to the full and proper implementation of all sections of the Communications Act, including Section 254. Implementation must be clearly within the law and clearly reflecting Congressional intent. I understand the great Congressional interest in all subsections of Section 254. I am not persuaded that the steps the Commission has taken to date fully meet all of the requirements of Section 254. With these reservations and my concerns regarding the effects that this action will have on rates, I endorse recent congressional requests that we delay the implementation of these new universal service programs until their impact on consumers can be more fully assessed and until we have engaged in a more comprehensive review of these programs.

Chairman Bliley of the House Commerce Committee has specifically requested that the Commission "delay implementing these programs until the impact on ratepayers can be more fully assessed." I agree with his concern that "neither Congress, nor the general public has had a sufficient opportunity to comment on the new `tax rates' being imposed on telecommunications carriers." In addition, Senator Stevens and Congress have wisely requested that the Commission review several aspects of universal service in a study that will be due in the Spring of 1998. That study will provide the most appropriate proceeding in which to review the Commission's approach to universal service and to ensure that that approach is consistent with Congressional intent. I see no need to begin implementing these programs on January 1, 1998 in the face of such direct Congressional concerns. Indeed, in response to recent questions from Chairman Bliley, Chairman Kennard agreed that this date is not statutorily required, but rather "the earliest feasible date."

American telecommunications consumers will be confronted with many changes in their bills this winter: new subscriber line charges and presubscribed interexchange carrier charges to name but two. For universal service to succeed it must be as consistent as possible with the statute and Congressional intent. I am not convinced that the universal service plans in place today are on as firm a footing as possible or as needed. Rather, I recommend that the Commission delay implementation of the new universal service programs until we have had the opportunity to fully assess the impact that these new programs will have on consumers. It would be prudent to wait for the findings of the study for Senator Stevens before proceeding with substantial changes to the current universal service mechanisms for low income Americans and for high cost and rural areas of America. Despite these concerns, however, I do support the recommended funding for the low income and high cost programs.

It is with great regret that I must respectfully dissent from the majority decision on the Federal-State Joint Board on Universal Service, Third Order on Reconsideration, CC Docket 96-45 and the First Quarter 1998 Universal Service Contribution Factors Revised and Approved Public Notice.