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May 27, 1999


FCC Votes to Raise E-Rate Tax by $1 Billion.

FCC Again Violates Statutory Mandate By Increasing E-Rate Tax While Delaying Implementation of High-Cost Program.

E-Rate Program Now Exceeds High-Cost Program

One year ago I voiced my concern that rates for many Americans would soon rise, ironically, all in the name of universal service. Once again, the Commission has voted to increase rates to support certain universal service programs by increasing the e-rate tax by another $1 billion.

In addition, unlike last year, there may not be any offsetting reductions in access charges for any consumers. Last Friday, the D.C. Circuit reversed and remanded the Commission's 1997 decision regarding the decrease in access charges that is scheduled to take place on July 1, 1999. Under the Court's Order, the Commission must reconsider those reductions or at least provide further explanation before the scheduled reductions can occur.

In any event, I continue to oppose using access charge reductions to fund the e-rate program. The American consumer, not federal bureaucrats, should choose how to spend any reductions in access charges. Moreover, even if access charges are reduced, not all of the e- rate contributors benefit from such reductions. For example, there will be no offsetting reduction in access charges whatsoever for wireless customers who will simply have to pay higher rates. Similarly, there is no assurance that the consumers who benefit from access charge reductions will be the same consumers who will bear the new universal service burden. For example, business consumers could disproportionately benefit from the access charge reduction while residential consumers pay for new universal service fees.

Moreover, with the Commission's actions today, the schools and libraries program support will now exceed the high-cost program support. This is not what Congress intended or what the law requires. I object to the Commission increasing only one aspect of universal service, again, and at the same time delaying higher priorities.

FCC's Failure to Meet Its Statutory Mandate

Under the 1996 Act, the Commission's primary universal service responsibility was to develop an "explicit and sufficient" support system that would ensure support for local telephone users in high cost. Congress set a strict time-frame for developing this plan – the FCC was required to "initiate a single proceeding" which was to be completed "within 15 months after the date of enactment of the telecommunications Act of 1996."

Once again the Commission ignores its statutory mandate by increasing the schools and libraries program while delaying the implementation of the high-cost program. Last year, I concluded that rural, high-cost issues should not be deferred while other aspects of universal service move forward.

Rural, high-cost universal service issues should not be resolved and implemented in some dim and distant future after all other universal service issues have been resolved; rural, high-cost universal service issues should be resolved and implemented first. Rural, high-cost universal service should not be viewed as the residual after enormous amounts for other federal universal service obligations have been promised; rural, high-cost universal service should receive the lion's share of any increase in the federal universal service fund.
While I recall the Commission providing numerous assurances that high-cost would not get left behind, here we are one year later and where is the Commission? Again seeking to raise the schools and libraries program by another billion dollars. And what about high-cost? The Commission is again delaying implementation until at least January 1, 2000 – and that is only for large-carrier high-cost.

And what about small company high-cost support? It will be addressed in some dim and distant future. It would appear to be the Commission's lowest priority.

I object to the Commission decision to move forward with some of its favored universal service projects, while at the same time ignoring its other statutory mandates.

High-cost Universal Service and Complicated Cost Models

Nor do I believe that the Commission is converging on a solution to the high-cost universal service issues. And what could be the reason that the Commission has failed to act on high-cost universal service issues? I believe it is, at least in part, because the Commission has decided to use extremely complicated, complex, economic, computer, cost models. The statute neither mentions nor contemplates any form of cost model for universal service, but the Commission has decided that these extremely cumbersome models should be used to distribute high-cost universal service funds. How complicated are these models? It takes more than 180 computer hours to run the cost model program from start to finish. As an economist who has worked with economic models for much of my professional career, I have little confidence in the results of models that take hours to run – much less hundreds of hours.

I remain convinced that rural, high-cost universal service is not just one of many objectives of Section 254; it is its highest priority. It is time this agency made the rural high- cost program – not some other preferred program (schools and libraries) and not its own fascination with complex, computer, cost-models – this agency's highest priority as well.