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June18, 1999

Separate Statement
Commissioner Susan Ness

Re: Federal-State Joint Board on Universal Service (CC Docket 96-45); Access Charge Reform (CC Docket 96-262).

The Telecommunications Act of 1996 embraces universal service as one of its

fundamental goals. In addition to promoting competition and eliminating regulation, one of our other main responsibilities is to ensure that all Americans have access to telecommunications and information services at affordable and reasonably comparable rates.

Every subscriber benefits from each new subscriber added to the system. Because unbridled competition, standing alone, will not suffice to meet all the special needs of discrete population segments, Congress directed us to give special attention to the needs of low-income consumers, consumers in rural, insular, and high-cost areas, schools, libraries, and rural health care providers, and people with disabilities.

The Commission has made considerable progress toward these goals. For low-income consumers, we have expanded Lifeline and Link-Up support to jurisdictions where it previously was unavailable and increased the amount of federal support in those jurisdictions that previously participated. Consumers in high-cost areas continue to receive affordable, high-quality telephone services due to a variety of implicit and explicit subsidies that are still in transition. The support mechanisms for schools, libraries, and rural health care providers have been implemented and funded. The Commission soon will adopt measures to promote accessibility of communications and information services for people with disabilities.

None of this work is complete. Each of these objectives will continue to require time and attention. This is especially true of high-cost reform, where efforts to craft a regime that is more consistent with the increasingly competitive nature of the industry run into severe legal, practical, and political constraints.

At the suggestion of members of Congress, the Federal-State Joint Board on Universal Service (Joint Board), and state public utility commissions from high-cost areas, the Commission decided very early in the process to distinguish rural carriers from the large companies. We recognized that one size does not fit all and that the financial structure of rural carriers differs greatly from that of large carriers.

Nothing we do today implicates rural carriers. The Telecommunications Act is clear that we should not hamper the ability of rural telephone companies -- some 1300 strong -- to serve their communities. Thus, the Joint Board established a Rural Task Force to examine the unique circumstances of rural carriers. I look forward to receiving its recommendations, and want to assure rural carriers that I will not support changes in their funding mechanisms until we have consulted with the Rural Task Force and are satisfied that the changes make sense for small rural carriers.

In the meantime, we are pressing forward with universal service reform for non-rural companies. In November, 1998, the Joint Board set forth a framework to "preserve and advance" universal service without overburdening consumers across the nation. I commend my colleagues on the Joint Board for designing a coherent universal service regime that will serve us into the 21st century. Today the Commission inserts yet another piece into the universal service puzzle by adopting the framework set forth by the Joint Board. I write separately to highlight several aspects of our decision.

First, we reject an earlier decision by the Commission to limit federal universal service support to 25 percent. Instead, we adopt the more balanced approach recommended by the Joint Board. Thus, to the extent a state’s resources are inadequate to maintain affordable and reasonably comparable rates, the federal mechanism will provide the necessary support. We also adopt the hold-harmless and portability principles recommended by the Joint Board. As Chair of the Joint Board I supported these recommendations then, and I support them now without reservation.

We also reaffirm the notion of using a forward-looking economic cost model. We cannot rely on the historic costs of a variety of carriers, because those costs are not derived uniformly throughout the country. We want to avoid locking in legacy systems or hindering the emergence of new technologies. To meet the challenge of competition and portability, we need a uniform, consistent method to determine the cost of providing service nationwide.

Our staff has worked tirelessly with the industry and staff from state commissions to design a workable cost model. To paraphrase Winston Churchill, cost models are the worst form of cost calculation except for all those other forms that have been tried. Indeed, nobody has proposed a better method for estimating forward-looking costs. But I view the cost model as merely a tool. It is only one piece of the puzzle. And we will not use this tool unless it has achieved a level of accuracy, predictability, and openness that garners widespread acceptance. I look forward to hearing from all interested parties during this next phase of comments on the inputs.

We also recognize that we need to move ahead with identifying the implicit subsidies in our universal service system and make them explicit. This is a top priority for me. Universal service and access charge reform are inextricably linked; they must move forward in tandem because interstate access currently provides implicit universal service support that is necessary to support rates. While I would have preferred to complete the process earlier, one result of the lag in the expected level of competition is that implicit subsidies do not appear to have been eroded. The revenues and cash flows of carriers that serve rural areas remain healthy. Current rates also remain affordable. As we move forward with universal service reform, we must ensure that there is sufficient explicit support to avoid unwarranted rate increases.

While I support the bulk of today’s decision, I dissent from that portion of the item that seeks comment on whether universal service funds should be distributed through block grants to the states. This is an issue that has been fully presented, fully debated, and fully rejected. The Joint Board does not support state-block grants, the states do not support such an approach, and neither do those who filed comments in response to the Joint Board’s recommendation. If we are ever to complete our restructuring of universal service, we need to take concepts off the table.

Finally, I would require that both the assessment and collection of federal high cost funding be based on both inter- and intrastate revenues. I have no objection to the states doing the same for their own universal service funds. I believe that such a policy comports with the law and has the advantage of eliminating the temptation for companies to game the process by categorizing revenue streams so as to reduce universal service obligations.

Solving the puzzle of universal service is no easy task. The challenge is to reform high-cost support mechanisms in a way that ensures that consumers will continue to have access to affordable, quality telecommunications services while being economically efficient, compatible with competition, and fair to both high-cost and low-cost states. I care deeply about preserving affordable telephone service for rural areas, but this does not make it easy to work out the details of a new regime. Nevertheless, I remain optimistic. Today we take an important step by adopting a workable framework. I look forward to continuing the dialogue with all interested parties as we move to the next stage of universal service reform.