Category

Universal Service

No More Backscratching Between Phone Companies

An ad campaign urged residents of Butler, GA to “Stop AT&T From Raising Your Rates” by planning to attend a public hearing earlier this month at the Taylor County Courthouse to provide testimony in Docket #35068, Rate Cases on the Track 2 Companies. The Georgia Public Service Commission sets the phone rates in Butler, but politics are politics, and AT&T is a better scapegoat for an ad campaign. AT&T doesn’t even provide the town’s phone service, although the telecom giant does help finance it. That’s because Georgia consumers pay a hidden tax on their phone bills that subsidizes the phone service provided by Public Service Telephone Co. in Butler. You guessed it, PST paid for the ads. >Continue reading


Landline rules won’t work for telecoms, or for Susan Shaw

Cecilia Kang of the Washington Post reports that

the telecom industry is forcing policymakers to re-examine what has long been a basic guarantee of government – that every American home should have access to a phone, along with other utilities such as water or electricity. Industry executives and state lawmakers who support this effort want to expand the definition of the phone utility beyond the century-old icon of the American home to include Web-based devices or mobile phones.

The quid pro quo for a monopoly franchise was an obligation to provide timely service upon reasonable request to anyone, subject to regulated rates, terms and conditions. The Telecommunications Act of 1996 eliminated the monopoly franchise, but the obligation to serve remains in the statute books of most states. Telecom providers, aka carriers-of-last-resort (COLR), are stuck with the quid without the quo.
This has become a problem as more and more consumers are “cutting the cord” in favor of wireless or VoIP services. AT&T, for example, has lost nearly half of its consumer switched access lines since the end of 2006. However, most of the loops, switches, cables and other infrastructure which comprise the telephone network must be maintained if telecom providers have to furnish telephone service to anyone who wants it within days.

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Further uncertainty for universal service and intercarrier compensation reform

The National Telecommunications Cooperative Association (NTCA) began the process of litigating the Federal Communications Commission’s recent Connect America Fund Order on in the U.S. Court of Appeals for the Fourth Circuit Friday. NTCA, which represents over 570 “locally owned and controlled telecommunications cooperatives and commercial companies throughout rural and small-town America,” notes, among other things, that “[p]rovisions [of the Order] mandating an ultimate price of zero for all switched access and reciprocal compensation services, imposing retroactive and dynamically changing caps on USF-supported costs and blurring the lines between regulated and nonregulated operations are inconsistent with law.” What this particular dispute is ultimately about is not whether NTCA’s members are entitled to recover their reasonable costs as a matter of law Read More ›


What is the FCC’s jurisdiction to subsidize broadband?

The Federal Communications Commission issued its Connect America Fund Order to ensure ubiquitous broadband Internet access services on Friday.
When Congress debated the Telecommunications Act of 1996, the section concerning Universal Service (Section 254) was somewhat controversial. Broadly speaking, there seemed to be considerable support in the House of Representatives for limiting Universal Service, and there were some influential senators who wanted to expand it (the House is somewhat more representative of urban areas that contribute subsidies, and the Senate is somewhat more representative of rural areas that receive subsidies). The result was a compromise in which Universal Service is defined (in Sec. 254(c)(1)) as “an evolving level of telecommunications services that the Commission shall establish periodically … taking into account advances in telecommunications and information technologies and services.” Notice how information services are missing in the first half of that sentence. Although the FCC is allowed to take notice of information services, Universal Service has to support telecommunications services only.
This is relevant because the FCC subsequently ruled that broadband Internet access is an information, not a telecommunications service (Order at paragraph 71). The commission also subsequently ruled that a service has to be one or the other, and that it cannot be both (“hybrid services are information services, and are not telecommunications services,” ruled the FCC in a 1998 Report to Congress at paragraph #57).

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States must reform rates for intrastate switched access

Federal Communications Commission Chairman Julius Genachowski’s criticism of intercarrier compensation in extensive remarks on telephone subsidies last week is a reminder for many states of the need to reform intrastate switched access rates.
Although Congress mandated the elimination of implicit subsidies embedded in the rates for both interstate and intrastate telecommunications services in the Telecommunications Act of 1996, it did not set a deadline. The FCC has substantially reduced interstate switched access rates in recent years, but a considerable amount of hidden subsidies remain in intrastate switched access fees.
In Florida, for example, one telecom service provider charges 5.64 cents per conversation minute for intrastate long distance versus only 1.65 cents for interstate long distance. The difference represents a hidden subsidy component that operates as a form of tax that only residents of Florida pay, since the lower interstate fees apply to calls which cross state lines.

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Reforming Universal Service is Plan C for broadband regulation

Chairman Julius Genachowski of the Federal Communications Commission spoke of the need to reduce subsidies for traditional wireline telephone service last week, as well as a perceived need for his agency to use the savings to subsidize broadband services (see the press release and the text of the speech).
Genachowski is absolutely correct about the need for reforming universal service and intercarrier compensation. Unfortunately, his determination to reform telephone subsidies is not for the purpose of generating consumer savings, but about redirecting resources currently at his disposal for the purpose of gaining some measure of control over unregulated broadband networks. Though cleverly disguised, this is actually a third major attempt to (slowly) impose public utility regulation on broadband service providers.

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Is regulation better than competition?

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Late last week the Federal Communications Commission voted along party lines to open a proceeding to “seek the best legal framework for broadband Internet access,” a process that could culminate in the imposition of stifling, telephone utility style regulations on America’s privately financed broadband networks pursuant to Title II of the 1934 Communications Act.
A statement by Commissioner Michael J. Copps explains in more detail than the rest why he thinks regulation is necessary for achieving this country’s “broadband hopes and dreams.”
The FCC has been deregulating communications services in response to increasing competition for years. Copps and others believe it is necessary to reverse course, although in his statement Copps doesn’t question the policy of deregulating a competitive market. He questions the facts, arguing that broadband is less competitive than it used to be. This is a misleading argument.

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Broadband taxes

The National Broadband Plan is going to take a while to digest. The following recommendations are included in the description of how the FCC plans to subsidize broadband — which may be necessary if it frightens away private investment with network neutrality regulation which deprives private investors of a fair return on their capital: RECOMMENDATION 8.2: The FCC should create the Connect America Fund (CAF). (p. 145-46) RECOMMENDATION 8.3: The FCC should create the Mobility Fund. (p. 146) RECOMMENDATION 8.4: The FCC should design new USF funds in a tax-efficient manner to minimize the size of the gap. (p. 146) RECOMMENDATION 8.6: The FCC should take action to shift up to $15.5 billion over the next decade from the current Read More ›


Reform intercarrier compensation

The Federal Communications Commission began a broad inquiry of intercarrier compensation in 2001 and now it may finally be getting around to acting on it on Nov. 4 while everyone’s thoughts are on something else. This is about 12 years overdue. Congress in 1996 foresaw that implicit phone subsidies were unsustainable and ordered the FCC to replace them with a competitively-neutral subsidy mechanism. Due to political pressure, regulators have failed to complete the job. Intercarrier compensation refers to “access charges” for long-distance calls and “reciprocal compensation” for local calls. A long-distance carrier may be forced to pay a local carrier more than 30 cents per minute to deliver a long-distance call, but local carriers receive as little as .0007 cents Read More ›


(Telephone) welfare as we know it

Reforming the system of heavy subsidies for rural telephone service, which dates back to the Great Depression, has long been a topic of discussion for telecom policy wonks. The Universal Service program is proof-positive that subsidies grow like weeds. Universal Service has spawned a constituency of more than 1,000 small telephone companies who’ve waged a Jihad to preserve their entitlement. Politicians have always found it expedient to look the other way. This may be changing. In recent years, wireless companies have set up shop in rural areas. Although their costs are generally far less than those of the incumbent wireline providers, one of the FCC’s brilliant “pro-competitive” policies bestows a subsidy for wireless service which is identical to the subsidy Read More ›