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Re: Proposed First Quarter 2000 Universal Service Contribution Factor Announced in CC Docket 96-45.

I cannot endorse the Common Carrier Bureau's proposed universal service contribution factor for the first quarter of 2000. The Commission continues to expand its universal service programs to astronomical proportions, and there seems to be no end in sight. Ratepayers are the losers here, since they wind up paying for the Commission's bloated universal service project in their phone bills. Many aspects of the Commission's implementation of the 1996 Act's universal service provisions trouble me, and I note some of those concerns here.

First, as I have observed many times, the schools and libraries program has ballooned into something Congress never envisioned, and it continues to grow. The Bureau projects that the program will require an astounding $552 million for the first quarter alone, with administrative expenses of an additional $9.8 million. These figures represent a nearly 42% increase from the first quarter of 1999, when the Bureau allocated around $320 million to the program. In addition, the expenses associated with administering this program are nearly 10 times higher than those for any of the other universal service programs. In my opinion, these expenses are excessive, and I cannot understand why there is such a tremendous disparity between the costs of operating the schools and libraries program and those associated with other universal service programs.

Second, the overall size of the universal service program has shot up by around 24% since the first quarter of 1999. Last December, the Bureau estimated that the total demand for its universal service programs would be $903 million in the first quarter of 1999. Now, it says that $1.181 billion is required.

Finally, I think it is worth noting that the way that consumers will pay for these expensive ventures has changed fundamentally in the past year. As a result of the Fifth Circuit's decision last July, the Commission may no longer include intrastate revenues in the universal service contribution base, and universal service contributions are now assessed only on carriers' interstate and international end-user telecommunications revenues. In simple terms, this means that long-distance and wireless carriers will wind up shouldering more of the burden for universal service (contributing nearly 6% of their interstate and international end-user telecommunications revenues to the program), and local exchange carriers will pay less. These companies will pass their increased costs along to consumers, who will pay significantly more for long-distance and wireless services. See Jerry Hausman, Taxation by Telecommunications Regulation, Working Paper/National Bureau of Economic Research (Nov. 1997). The burden on traditional long-distance companies may turn out to be especially severe, given the emergence of the Internet as an unregulated alternative to traditional circuit-switched calling. Consumers unwilling to pay artificially high long-distance bills may begin opting for the new medium of the Internet. Even in the short term, therefore, the Commission's method of collecting support for its universal service programs may well be unsustainable.