November 7, 1996
Re: Federal-State Joint Board on Universal Service Recommended Decision (CC Docket No. 96-45)
Today's decision is another milestone in the implementation of the Telecommunications Act of
1996. The task at hand is as challenging as any that Congress assigned under this landmark
legislation. Our job is to construct a new universal service regime that makes subsidies more
explicit, more targeted, more efficient, and more compatible with competition, even as the
vision of universal service is boldly extended.
The new legislation seeks to make quality services available at affordable rates to all
Americans. Congress chose competition as the surest route to that end. Yet the law also
mandates special measures to protect low-income consumers and those living in rural, insular,
and high-cost areas. Congress also enlarged the universal service program to encompass
schools, libraries, and rural health care providers.
Congress told us to "thoroughly review the existing system of Federal universal service
support." We have done what Congress directed and determined that our current system of
support for universal service is not sustainable. It relies on billions of dollars (no one can say
how many) of implicit subsidies. Access charges, vertical services, and business lines, for
example, are all priced well in excess of cost, and some of the excess helps to keep local phone
rates low. Competitors, naturally, will target the high-margin services, and these sources of
subsidies will inevitably diminish over time.
Our current system is not competitively neutral. The obligation to support universal service is
not fairly distributed, and neither is the opportunity to receive universal service support. To
effectuate the will of Congress, new mechanisms are necessary to expand the base of carriers
who fund universal service and to expand eligibility to receive universal service support.
These challenges call for a comprehensive restructuring of universal service support
mechanisms. Today's Recommended Decision is a promising start in that endeavor.
Throughout our deliberations, we have adhered to the principles Congress enumerated in the
legislation. We have also taken the opportunity created by the law to add "competitive
neutrality" as a guiding principle of universal service policymaking. This decision is
consistent with the intentions underlying Section 254 and the legislation as a whole.
Definition of universal service
As we defined the services to be supported, we were mindful that the funds for universal
service ultimately come from consumers; and so we have resisted entreaties for an expansive
definition. The menu of services initially to be supported for high-cost areas and low-income
consumers is limited to those services that most consumers already receive. We look to
competitive supply and consumer demand to establish higher levels of service, which the Joint
Board can take into account as it reviews the definition of supported services in future years.
Prudence also requires that (except as directed in the case of schools, libraries, and rural health
care providers) we limit universal service support to single-line residences and single-line
businesses. There is no reason why ratepayers as a whole should bear the burden of
supporting multiple lines to a single residence, single lines to second homes, or multi-line
Charges for telephone service appear to be generally affordable throughout the nation.
Subscribership is at 94 percent overall. The problem of access appears to be concentrated at
the lower end of the income scale, and this necessitates certain focused changes in our low-income programs. Extending these programs to states that do not have them, encouraging the
deployment of toll limitation services, and prohibiting disconnection for nonpayment of toll
charges of Lifeline customers should, in the aggregate, promote the goal of increased telephone
subscribership by low-income consumers.
We have made good progress in addressing the challenge of high-cost areas, but much remains
to be done. We have achieved consensus on the important principle that support should be
based on forward-looking economic costs. We have established principles and procedures for
further development and evaluation of cost proxy models. We have agreed to bifurcate the
treatment of rural and non-rural local exchange carriers, recognizing that rural carriers are
more vulnerable to errors that may be caused by the proxy models and that Congress
envisioned a slower transition to competition in rural areas.
Regrettably, the Joint Board has failed to address the question whether the funding for federal
programs for high-cost support -- as well as low-income support -- will be based on both the
intrastate and interstate revenues of carriers that provide interstate telecommunications
services, or only on their interstate revenues. This necessarily draws into question the ability
of the federal fund to support the difference between cost (proxy or embedded) and a
reasonable benchmark; an interstate-only approach inevitably leads to a much higher
In my view, the federal program must be based on both intra- and interstate revenues and
provide the full measure of support needed to meet the benchmark. The alternative is to risk
that consumers, small businesses, and carriers in high-cost states will be left without the
support Congress intended. This cannot be squared with Congress's decision to write a clear
commitment of universal service into federal law.
In addition, I can see no reason why interstate revenues alone should be the source of all new
explicit subsidies, given that a portion of today's implicit subsidies comes from local business
service, vertical services, and intrastate access. And the principle of competitive neutrality
should steer us away from an approach that would disproportionately burden any category of
carrier (as, for example, would occur with wireless companies under an interstate-only
Schools and libraries
The boldest, most visionary section of the legislation requires us to promote the connection of
schools and libraries to the Information Superhighway. As Congress saw clearly, the
Industrial Age is giving way to the Information Age. To prepare our nation for life in the 21st
Century, communications and information tools must be readily available to all American
students and communities.
There is a substantial danger that disparities in access to these tools will widen the economic
and cultural divide between the rich and the poor. I am delighted that the Joint Board has
recommended that we address this issue through aggressive discounts that enable poorer
schools and those in rural areas to obtain the services they need.
Learning occurs in the classroom, not the principal's office. I share President Clinton's hope
for a "day when computers are as much a part of the classroom as blackboards and we put the
future at the fingertips of every American child."
So, too, does the Congress.
That's why the legislation explicitly promotes the connection not just of "schools," but of
"classrooms." And we are on firm legal and policy ground in recommending universal service
support for internal connections, whether or not they are "telecommunications services." A
contrary construction, which would permit support of wireless connections but not wired ones,
would be completely at odds with the principle of competitive neutrality. Technology choices
should be made by schools and libraries, not by regulators.
Our proposal for schools and libraries reflects a careful compromise among all eight members
of the Joint Board. All of us brought different perspectives to the discussion, but we ultimately
forged consensus on the proposal we announce today.
The proposal is fair to all. It is simple to administer. It provides schools with flexibility to
choose the services they need. It is competitively neutral. It is fiscally responsible and creates
the right economic incentives to both encourage participation and discourage inefficient
I hope that schools and libraries seize this exciting opportunity. Over the next four years, if
communities are willing and able to shoulder their share of the financial responsibility, all of
the classrooms in the country can be connected, to each other and to the world beyond. A
relatively small investment in connecting our schools and libraries to cyberspace will be repaid
many times over in the 21st century.