In the Matter of		)
				)
Federal-State Joint Board on	)	CC Docket No. 96-45
Universal Service		)
				)

WorldCom, Inc., d/b/a LDDS WorldCom ("LDDS WorldCom"), hereby files its comments in response to the Notice of Proposed Rulemaking ("Notice"), FCC 96-93, released by the Commission on March 8, 1996 in the above-referenced proceeding. As one of the four largest facilities-based interexchange carriers ("IXCs") in the United States, LDDS WorldCom has a substantial interest in the outcome of this proceeding.

I. LDDS WORLDCOM STRONGLY SUPPORTS THE NEW UNIVERSAL SERVICE MANDATES ESTABLISHED BY THE TELECOMMUNICATIONS ACT OF 1996

LDDS WorldCom welcomes the Commission's initiation of this proceeding. LDDS WorldCom has been a long-time participant in FCC and state universal service proceedings,[1] and most recently filed related comments in the FCC's increased subscribership docket.[2] LDDS WorldCom has consistently advocated a vigorous but narrowly-tailored universal service obligation, one that is shouldered by all service providers on a nondiscriminatory basis wholly independent of the local exchange carriers' ("LECs'") current interstate access charge regime.

Under the terms of the recently-enacted Telecommunications Act of 1996,[3] the FCC and the states are required to make revolutionary, far-reaching changes to the current structure of collecting and disbursing universal service subsidies -- changes necessary to permit a movement toward competition. The 1996 Act directs the Commission and a Joint Board to act only in accordance with certain guiding principles, which include: (1) "quality services" must be made available to consumers at "just, reasonable, and affordable rates;"[4] (2) "equitable" and "nondiscriminatory" contributions to universal service must be made by "all providers of telecommunications services;"[5] and (3) new universal service support mechanisms must be "explicit," "specific," and "predictable."[6] The Act also provides that any "eligible telecommunications carrier" can receive and disburse universal service funds.[7] In short, all telecommunications service providers equally have both the obligation and the opportunity to serve the basic telephony needs of the American public.

When considering the issue of universal service (and soon, LEC interconnection obligations under Section 251), the Commission must recognize one basic fact: the Telecommunications Act of 1996 was enacted to enable and promote robust competition in all segments of the telecommunications industry. The 1996 Act was not adopted as a means of ensuring that any industry segment, including the incumbent LECs, will be protected from the inevitable effects of true competition. Many of the LECs may argue in this proceeding and elsewhere that any changes to the existing universal service and access charge regimes must make them whole for revenues "lost" in the competitive process. It must be stressed, however, that the 1996 Act is a revolutionary instrument that rejects the simplistic mantras of the status quo monopoly. As the Commission observes, the Act "makes clear that we are to take a new approach in designing support mechanisms for universal service...."[8] When the Joint Board equitably expands both the class of carrier contributors to universal service and the class of carriers eligible to receive support, incumbent LECs that want to cling to artificially-inflated revenue streams can and will be replaced. Any guarantee of revenue neutrality for the LECs is fundamentally incompatible with the explicit requirements of the Act, and with the fully competitive environment that the Act embraces.

II. THE NEW UNIVERSAL SERVICE PROGRAM MUST BE TAILORED TO SUPPORT COST-DERIVED RATES FOR A DISCRETE CLASS OF CONSUMER SERVICES, AND MUST UTILIZE EQUITABLE FUNDING AND DISBURSEMENT MECHANISMS THAT ARE EXPLICIT, PORTABLE, COMPETITIVELY NEUTRAL, AND NONDISCRIMINATORY

The Telecommunications Act of 1996 establishes universal service obligations to serve the unique needs of three different constituencies: (1) residents of "rural, insular, and high cost areas" of the United States;[9] (2) "low-income consumers";[10] and (3) schools, health care providers, and libraries.[11] In these comments, LDDS WorldCom will focus on the first two universal service categories, but reserves the right to address the third category in reply comments.

The structure of the proposed universal service funding mechanisms differs in some respects for rural and high-cost regions versus low-income consumers. While support for rural and high-cost regions necessarily focuses on certain geographic areas and services, the support for low-income consumers targets individuals on a case-by-case basis. In addition, given the different goals of the respective funding mechanisms, the levels and types of support given for each category should be determined separately as well. Nonetheless, in terms of the services provided, and the contributors and distributors of funding, the two categories are more alike than dissimilar. Therefore, unless warranted by different treatments, LDDS WorldCom will address together the various universal service issues affecting both categories of universal service.

A. Any Telecommunications Provider Meeting The Statutory Definition Of An "Eligible Telecommunications Carrier" Should Be Able To Receive Universal Service Funds

The Notice seeks comment on which telecommunications service providers are eligible to receive universal service funds.[12] The 1996 Act states that any "eligible telecommunications carrier" designated by the pertinent state regulator is authorized to get universal service funding.[13] The states are required to authorize eligible carriers in all non-rural areas so long as the public interest is met.[14] In addition, as the Notice observes, the 1996 Act grants the Commission authority to base its universal service policies on any other principles that are consistent with the Act and the protection of the public interest.[15] As one such potential principle, the Notice queries "whether we should ensure that the means of distributing universal service support should be competitively neutral...."[16]

LDDS WorldCom provides long distance service to almost 800,000 residential and business subscribers across the United States. Many of these subscribers are located in rural or high-cost areas, and some are low-income. As the monopoly local exchange market becomes opened to competition for the first time, LDDS WorldCom would like the ability to broaden the services that it provides to its customers, including those in rural and high-cost areas, and low-income consumers, to include local services. In order to serve its customers' local service needs, in many areas LDDS WorldCom will lease network facilities from other carriers. By acquiring network facilities in this fashion, LDDS WorldCom and other carriers that enter the local market by the same method will step into the shoes of the underlying carrier, and should receive the universal service funding that would have gone to the underlying carrier.

The Act has established a pro-competitive universal service mechanism that combines the virtues of the marketplace and the social needs of providing affordable telephone service. The only way to ensure that these dual goals are achieved is through a competitively-neutral fund that allows any eligible carrier access to subsidies. Thus, LDDS WorldCom supports the Commission's proposal to adopt as an additional express principle that the criteria for determining eligible carriers under Section 214(e) must be applied in a "competitively neutral" manner. In line with this important principle, LDDS WorldCom supports giving universal service funding to as many carriers as meet the statutory definition of an "eligible telecommunications carrier." These subsidies should be fully portable, so that when a consumer selects a particular carrier, that carrier will then be eligible for universal service funding to help serve the consumer.[17] As a result, the incumbent LEC with above-average loop costs in rural or high-cost regions, or who serves low-income subscribers, should no longer be subsidized automatically by other carriers for its universal service costs. Instead, new market entrants would have equal footing to get the same level of subsidies. This approach is consistent with the Act because it avoids undue discrimination in favor of the incumbent LEC.

The Act specifies that an eligible carrier must be willing to offer and advertise its service, and must use "its own facilities or a combination of its own facilities and resale of another carrier's services (including the services offered by another eligible telecommunications carrier)...."[18] It is the retail provider serving the consumer, then, that is eligible to receive universal service support, not the wholesale provider. As a fundamental matter, the Commission should find that the facilities referenced in the Act include not only facilities constructed and deployed by the carrier, but also facilities that are leased from incumbent LECs and other carriers. This is necessary because all carriers, regardless of technology or facilities used, must be able to meet all the needs of their consumers in rural or high-cost areas, and low-income consumers. Thus, a carrier that provides the requisite universal services using network elements leased at cost from the incumbent LEC or other carrier clearly qualifies as an eligible carrier under Section 214(e).[19] This conclusion is fully consistent with the Act, which seeks to open all telecommunications markets to competition. Allowing carriers using leased facilities to become "eligible telecommunications carriers" will be critical to giving consumers maximum choices to meet their telecommunications needs, and bringing the many benefits of competition to all consumers.

B. The Commission Should Adopt An Amended Version Of Its Proposed Core List Of Universal Services

The Notice spells out a list of telephone services that the Commission proposes would be included in the universal service obligation for rural and high-cost areas. This list includes voice grade access to the public switched network, touch-tone service, single party service, access to emergency 911 service, and access to operator services.[20] The Notice proposes that low-income consumers also have access to the same list of universal services.[21]

LDDS WorldCom agrees that each of the elements included in the proposed list is an essential service which should be readily available to all present-day American consumers. LDDS WorldCom also suggests the inclusion of two other services as well. First, all consumers should have equal access to the "1+" long distance service provider of his or her choice. The ability to place a long distance call with one's carrier of choice is widely considered to be an intrinsic component of basic telephone service. Adding this obligation would be consistent with the universal service provisions of the Act, which specifically directs that consumers "shall have access to ... interexchange services."[22]

Second, and in keeping with the proposed obligation to enable consumers to access long distance services, the definition of universal service should also include voluntary call control restrictions, such as toll blocking or toll limiting services. In its recent comments in CC Docket No. 95-115,[23] LDDS WorldCom urged the Commission to allow consumers to voluntarily block their usage of long distance service as a means of tailoring their household calling patterns to their own unique financial situation.[24] This position is bolstered by a 1995 study which concludes that most marginal users leave the public switched network due to an inability to control spending on usage-related charges, such as long distance service.[25] With the addition of these two elements suggested by LDDS WorldCom, consumers will have both ready access to the public telephone network for long distance calling, and the ability to voluntarily limit that access in self-guided ways.[26]

As the new Act makes clear, the accepted list of essential universal services is expected to evolve naturally over time, as other, more advanced telephone services become readily subscribed to by a "substantial majority" of the American public.[27] The Commission should require that the list of essential services be reexamined on a regular basis to determine whether the choices dictated by the market require an expansion of the definition. If certain other telecommunications services eventually meet this statutory criteria, LDDS WorldCom would support their inclusion in the definition of universal services.

The Notice asks whether universal service support should be limited to residential users, or should include single-line business users, or even all users.[28] LDDS WorldCom believes that Congress intended that the "consumers" residing in rural and high-cost regions that would be eligible for universal service support are not necessarily limited to residential subscribers. Small single-line businesses potentially encounter the same telephone expense problems in rural and high-cost areas that residential consumers there also face. The FCC should not artificially limit support in rural and high-cost regions only to residential consumers.

The Notice also seeks comment on other related definitional issues. To determine whether consumers have access to "quality services,"[29] LDDS WorldCom believes that the competitive market will ensure that service quality is more than adequate. There is no compelling need for FCC oversight, technical standard setting, or reporting requirements, so long as there are multiple providers of service in the local markets. In the meantime, before competition begins to develop in the local market, the states themselves can monitor the quality of the services provided by the incumbent LECs.[30]

Finally, the concept of an "affordable" rate queried in the Notice will differ depending on whether the rural/high-cost or low-income categories are involved.[31] Most low-income consumers will need a lower rate for telephone service than rural and high-cost consumers will require in their regions. Thus, as is discussed below, different mechanisms should be used to derive the proper levels of financial support for low-income and rural/high-cost consumers.

C. Universal Service Support Levels Should Be Calculated Based On Actual Or Estimated Service Costs, Not Incumbent LEC Rates

The Notice next seeks comment on the appropriate methodology to determine what level of universal service support should be funded for both rural/high-cost areas and low-income consumers. Resulting rates are required to be "just, reasonable, and affordable."[32]

1. Rural/High-Cost Regions

LDDS WorldCom believes that the current Universal Service Fund ("USF") and dial equipment minute ("DEM") weighting supports found in Part 36 of the Commission's Rules,[33] which are funded by IXCs and other users of interstate access, are incompatible with the 1996 Act. Among other drawbacks, these funding mechanisms do not impose equitable, nondiscriminatory obligations on contributors, do not create direct, explicit, and specific distribution procedures, do not reflect actual underlying cost of providing universal service, and do not grant competitively-neutral opportunities to competing providers. As a result, the USF and DEM methodologies must be replaced with a unitary funding mechanism that is compatible with all the guiding principles in the 1996 Act.

The Commission should adopt several general rules for funding universal service in rural and high-cost regions. First, as the Act makes clear, no universal service support is necessary where rural or high-cost area rates are already "reasonably comparable" to rates in urban areas.[34] Second, existing rural service rates cannot be presumed to be "reasonable" because many rural residents receive service that is set at rates below urban rates. Third, the overall subsidy should be determined by the difference between the reasonable cost of providing the service, and the "reasonably comparable" cost for urban services. The important point is to make sure that the funding mechanism only supports the actual cost of providing service, not a certain carrier's rates or revenue requirements; in the terms expressed in the Notice, the support should be calculated based on "inputs," rather than "outputs."[35] Support also should not be geared to achieve specific end user prices, but rather to ensure that the cost structures of the rural or high-cost areas allow for "affordable" rates charged by several competing carriers. Finally, the contribution levels should be subject to periodic regulatory review, with the goal of decreasing the amount as the advent of competition and newer technologies further decreases the cost of providing local service.

LDDS WorldCom generally supports the joint Benchmark Costing Model ("BCM") approach advocated by MCI, Sprint, and others.[36] The Model establishes a benchmark cost range for certain residential telephone services. Although the BCM is only a proxy model that does not use actual cost data, and although it assumes the continued use of current wireline technology, LDDS WorldCom believes the BCM offers a good starting point for determining how to calculate rural and high-cost subsidy. One caveat is that the results of any cost proxy model adopted by the Commission should be capable of review by all interested parties (and certainly those entities which are required to pay universal service support).

The Notice also seeks comment on a proposed competitive bidding process to set the level of high-cost assistance.[37] While LDDS WorldCom is generally supportive of the concept of competitive bidding as a means of minimizing the level of high-cost assistance needed, it is obvious that, as the Commission observes, "[b]idding to set the level of support payments cannot take place until competitors enter the market."[38] In the absence of competition for high-cost assistance funds, the Commission should retain a compensation plan based on the incumbent LECs' underlying costs of service.

2. Low-Income Consumers

Currently Federal universal service funds are paid out to low-income consumers directly in the form of two plans: (1) the Lifeline Assistance Plan ("Lifeline"), and (2) Link Up America ("Link Up"). Unlike the USF and DEM mechanisms, Lifeline and Link Up are both targeted in a means-tested way to specific low-income consumers.

Under the 1996 Act, the Commission and the states are required to determine exactly who qualifies as a "low-income consumer."[39] The Commission and states also must define what rates would be "affordable" to consumers.[40] As a result, the low-income subsidy required by the Act must be narrowly targeted to serve only low-income consumers. Means-testing is the best method for readily identifying the appropriate group of low-income consumers. The Commission can accomplish this goal in three steps. First, the generally available local service costs and rates can be determined. Second, the appropriate income levels should be established, below which basic service would not be affordable. Third, the subsidy necessary to provide assistance should be calculated. Again, a primary objective should be to subsidize the actual cost of providing service, not the incumbent LECs' existing revenue requirement.

D. A Broad Universe Of Telecommunications Service Providers, Including Providers Of Telephone Service Over The Internet, Should Contribute To Universal Service

The 1996 Act requires that the Commission identify the appropriate categories of contributors to universal service. LDDS WorldCom believes that this universe of supporters should be the same for rural and high-cost areas as well as for low-income consumers.

The new statute speaks of requiring universal service contributions by "[e]very telecommunications carrier that provides interstate telecommunications services...."[41] In turn, the Act defines "telecommunications carrier" broadly to include "any provider of telecommunications services,"[42] and "telecommunications service" as "the offering of telecommunications for a fee directly to the public."[43] The Commission may only exclude de minimis contributions by a carrier or class of carriers, and may also require "[a]ny other provider of interstate telecommunications" to contribute "if the public interest so requires."[44]

The Notice asks what service providers constitute "telecommunications carriers" under the 1996 Act.[45] On its face, the new statute obligates a wide range of service providers to contribute to universal service, including LECs, IXCs, competitive access providers ("CAPs"), and commercial mobile radio service ("CMRS") providers, such as cellular telephone service providers, paging service providers, and personal communications service ("PCS") providers. Each of these groups properly must contribute to universal service funding "on an equitable and nondiscriminatory basis." It is entirely appropriate for all telecommunications carriers, and consequently their customers, to contribute to universal service in order to spread the burden equitably and to sustain the availability of affordable rates for low-income consumers and those consumers living in rural and high-cost regions.

LDDS WorldCom believes that some enhanced service providers ("ESPs") may also meet the statutory definition of a "provider of telecommunications service," and as such would be required to contribute to universal service as a matter of law.[46] The broad statutory language certainly encompasses all types of telecommunications services, including certain online information services provided by ESPs. At present, services provided by ESPs are classified by the FCC as "enhanced services," and hence are exempt from a wide panoply of federal regulations applicable to providers of "basic services" such as long distance carriers.[47] For example, ESPs are not required to pay interstate access charges, and currently are subsidized by IXCs who must pay those charges. Nor are ESPs required to pay any universal service support. The public interest dictates that at least some of these service providers pay their fair share of universal service subsidies.[48]

At a minimum, a discrete category of entities that provide interstate and international telephone services over the Internet (the so-called Voice-Over-Net, or "VON" service providers) should be required as a matter of law and equity to pay interstate access charges and contribute to universal service funding as a "provider of interstate telecommunications." These entities utilize the currently unregulated medium of the Internet to offer real-time, two-way telephone services to their customers. These new VON services are rapidly becoming functionally indistinguishable from normal long distance telephony, except that VON services usually are free or nominally-priced to the consumer because they do not include interstate access charges, universal service charges, or international accounting settlements. However, VON services to date have never been classified by the FCC as "enhanced services" which are exempt from all requirements to pay carrier-based charges. In fact, VON services are not properly classified as an "enhanced service" under the Commission's three-part test because they: (1) do not act on the subscriber's transmitted information, (2) do not provide the subscriber additional or different information, and (3) do not involve subscriber interaction with stored information.[49] Instead, VON services meet the FCC's definition of a basic, regulated service because they offer "a pure transmission capability over a communication path that is virtually transparent in terms of its interaction with customer supplied information."[50] Even if the Commission incorrectly finds that VON services somehow meet the enhanced services definition, VON services still must be classified as "adjunct-to-basic" service under the FCC's NATA Centrex doctrine.[51] This classification certainly would allow the Commission to regulate providers of VON services as "providers of telecommunications service" to the extent necessary to "preserve and advance" the universal service obligation.[52]

Thus, VON services easily meet the statutory definition of a "telecommunications service" and should be required to pay their fair share to support universal service. Otherwise, traditional long distance users may migrate en masse to these artificially priced VON services, thereby bypassing the access charge system altogether and seriously threatening the future of universal service. To prevent this uneconomic bypass of the public switched network, the Commission must require VON providers to pay their universal service obligations.[53]

E. Contributors To Universal Service Should Pay Explicit Surcharges Based On Their Gross Revenues Less Payments To Other Carriers

The 1996 Act requires that contributing telecommunications providers utilize "specific, predictable, and sufficient mechanisms established by the Commission...."[54] In addition, the "specific Federal universal service support" must be "explicit."[55]

1. Rural/High-Cost Regions

The current scheme of USF and DEM weighting must be abandoned in favor of an explicit surcharge payable by all telecommunications service providers. To accomplish this, the simplest means of recovering the subsidy would be for the Commission to increase the Subscriber Line Charge ("SLC") to cover the universal service costs. As an alternative, the Commission should create and levy an explicit surcharge based on the gross retail revenues of a telecommunications provider net payments to other carriers.[56] This would be calculated by taking total revenues minus payments made to other carriers, such as access charges and wholesale rates paid by resellers. The Commission has used a similar funding mechanism for its annual regulatory fees structure. This method would, among other things, prevent the double counting of carrier revenues. It is also important that this assessment mechanism be applied consistently throughout the country, to prevent the "balkanization" at the state level of the recovery of the universal service contribution.

2. Low-Income Consumers

Currently universal service funds are paid out to low-income consumers directly in the form of the Lifeline and Link Up plans, both of which are largely subsidized by the IXCs through interstate access charges. Neither plan passes muster under the Act's requirement that contributors utilize explicit and predictable mechanisms in a competitively-neutral, nondiscriminatory way. The Act does state, however, that the universal service provisions are not to affect "the collection, distribution, or administration" of the Lifeline program.[57] Thus, LDDS WorldCom supports retaining the fundamental structures of both programs, while at the same time extending the funding obligation to all telecommunications providers in the form of explicit, provider-neutral surcharges. As in the case of low-income universal service support, these surcharges should be based on a provider's gross interstate revenues, net of payments made to other carriers.

F. A Truly Neutral Third Party Should Be Selected To Administer The New Universal Service Plan

The Notice seeks comment on "the best approach to administer the universal service mechanisms fairly, consistently, and efficiently."[58] Suggestions include utilizing a non-governmental fund administrator, or the state public utility commissions.[59]

LDDS WorldCom strongly supports the use of a neutral third party administrator to determine the amount of retail surcharges, collect receipts, distribute subsidy payments, and enforce eligibility criteria. The National Exchange Carrier Association ("NECA") currently administers a number of federal payment programs, including USF, Lifeline, Link Up, and the Telecommunications Relay Service ("TRS") Fund. However, as the name itself implies, NECA is not a truly neutral third-party administrator, but rather an organization with close ties to the incumbent LEC community. While LDDS WorldCom does not wish here to cast aspersions on the impartiality of NECA's present-day role, it is obvious that the newly-competitive environment engendered by the 1996 Act will require appointing a fund administrator which is completely even-handed, in both appearance and reality. The Commission should take care to select an entity with absolutely no pecuniary or institutional interest in the universal service monies that it will collect and disburse, nor any special ties to one group/type of contributors or recipients.

III. ALL EXISTING UNIVERSAL SERVICE SUBSIDIES AND OTHER NON-COST-BASED "EXPENSES" MUST BE REMOVED FROM INTERSTATE ACCESS CHARGES AND REPLACED WITH A SET OF EXPLICIT, NONDISCRIMINATORY, AND EQUITABLE FUNDING MECHANISMS

In the Notice, the Commission observes the obvious: the current interstate access charge system, which is rife with universal service subsidies and above-cost expenses, is not compatible with the new pro-competitive environment that is dictated by the 1996 Act. The Commission acknowledges, for example, that "the current CCL charge appears to be inconsistent with the directives of the 1996 Act."[60] These directives include a provision that universal service support flows must be "explicit" and be recovered on a "nondiscriminatory basis" from "all" telecommunications carriers providing interstate telecommunications service.[61] The Notice asks whether the CCL charge should be eliminated completely, or reduced, to "permit LECs to recover these costs from end users."[62] For the same reasons, the Commission also proposes to "eliminate the recovery of LTS revenues through incumbent LECs' interstate CCL charges," and restructure the program in an explicit and nondiscriminatory manner.[63]

LDDS WorldCom welcomes the Commission's solicitation of views on the all-important issue of removing subsidies from interstate access charges. LDDS WorldCom has long advocated that the portions of the interstate access charge scheme that cannot be attributed to the actual cost of providing access to the LECs' local networks -- including universal service funding -- be eliminated completely from the access charge regime. Moreover, LDDS WorldCom has supported further reform that would require that universal service funds be recovered from all service providers on an equitable, competitively-neutral, and nondiscriminatory basis.[64] The Commission's tentative position that CCL charges and LTS charges must be eliminated or dramatically refashioned -- while not sufficient to completely reform the entire access charge regime -- certainly takes a major step toward meeting the specific universal service requirements of the 1996 Act.

The basic problem facing the Commission is that the current universal service support mechanisms are flatly inconsistent with the 1996 Act because they are embedded in a subsidy-ridden access charge scheme. Among other flaws, those access charges are not based on cost (as required by Sections 251(c)(2) and 251(c)(3) of the Act), are inequitable and discriminatory (in violation of Section 254(b)(4)), and are often not explicit (in violation of Section 254(e)). In addition, since the Act requires that telecommunications service providers pay only cost-based rates to interconnect with the LECs' networks (leaving other carriers without Section 251(c)(3) interconnection agreements to pay above-cost rates to accomplish the very same function), the current access charge regime would constitute an unjust and unreasonable practice, and create an unlawfully discriminatory classification for "like service" in violation of Sections 201(b) and 202(a) of the Communications Act of 1934, as amended.[65]

It is obvious, then, that universal service support should no longer be linked to the incumbent LECs' access revenue streams. All subsidies, including universal service support, must be eliminated immediately from the interstate access charge system. In particular, implicit subsidies, such as intrastate common line costs contained in the CCL charge, are directly contrary to the requirement of "explicit" charges in Section 254 of the Act.[66] Moreover, Section 254(k), which is contained in the universal service portion of the statute, also prohibits carriers from using services not subject to competition to subsidize services that are subject to competition.[67] Because LEC access charges are plainly not competitive, and many of the implicit subsidies in access charges can be used by the LECs to subsidize their competitive ventures (including long distance service), the implicit subsidies in access charges must be removed at once. The Commission should order immediate cost studies which identify and quantify implicit subsidies now in the LECs' interstate access charge regime. Those subsidies then should be removed from access charges and placed in a separate funding pool. In addition, the explicit subsidies now included in the Universal Service Fund, DEM weighting, the Long Term Support portion of the CCL charge, and Lifeline and Link Up programs, also must be terminated and replaced with a funding mechanism that is competitively neutral both in collection and distribution.

In the interim, until final action has been taken in this proceeding by May 1997, the key is for the Commission and the Joint Board to act now to completely eliminate the blatantly discriminatory linkage between interstate access charge rates (now paid by a select few telecommunications service providers) and universal service obligations (which must be paid by all telecommunications service providers).[68] This can be accomplished most quickly and easily by reducing all interstate access charges to cost immediately. Other alternatives are available, however, and LDDS WorldCom suggests below just one possibility that, in a few interlocking steps, would sever the inequitable linkage between interstate access and universal service:

First, the LECs should be required to quantify, either directly or via a reasonable proxy: (a) the Total Service Long Run Incremental Cost (TSLRIC) of providing access (i.e., interconnection) to the LECs' local networks, including a reasonable profit to the LECs; (b) all federal universal service obligations; and (c) the remaining amounts in access charges, which are comprised of non-cost-based LEC "expenses."

Second, all non-cost-based LEC "expenses" must be removed completely from the interstate access charge system. The LECs would be free to either absorb these "expenses" internally, or else pass them along to consumers in their retail rates.

Third, all federal universal service obligations should be assigned to a separate funding pool. This pool would remain fully funded in the form of explicit retail surcharges to be paid equally by all telecommunications service providers.

Fourth, LEC interconnection agreements negotiated pursuant to Section 251 of the Act must specify only actual interconnection cost (based on TSLRIC), including a reasonable LEC profit. On a going-forward basis, all interconnectors must also pay the interim retail surcharge into the new funding pool to cover their interim universal service obligations.

Fifth, the Regional Bell Operating Companies cannot enter the in-region long distance services market until (a) interstate access charges have been set at cost, and (b) the final universal service funding mechanism has been adopted and implemented by the Joint Board.

This illustrative interim system, one of many possibilities, is consistent with the dictates of the Act, and would not unduly harm consumers or the incumbent LECs. In fact, consumers' overall rates for telecommunications services actually should decline under this approach. First, rural and high-cost residents and low-income consumers would be completely unaffected because they would continue to receive the present level of universal service benefits. Current universal service obligations would remain fully funded through the interim period, with the pool of contributors broadened in keeping with the dictates of the Act. Second, once competition begins to take hold eventually in the local exchange market, rates for local service should begin to decline. Third, as universal service and access charge rates are reduced, long distance companies such as LDDS WorldCom will be able to flow through those cost reductions to their customers. Fourth, the LECs will become more efficient and competitive providers of access by eliminating all non-cost-based "expenses" in their present access charge rates. Only if the LECs tried to recover those "expenses" through increased retail charges, and state regulators permitted such recovery, would the consumer actually experience any increase in telephone rates. Thus, universal service would be protected, local, access, and long distance rates should decline, and the LECs would be fully compensated with a reasonable profit.

Urgent action is needed now. In lieu of the Commission implementing a Joint Board decision by May 1997, LDDS WorldCom strongly urges the immediate adoption of an interim universal service reform plan that comports with all the requirements of the 1996 Act.

IV. CONCLUSION

The Commission and Joint Board should act in accordance with the recommendations proposed above.

Respectfully submitted,

____________________________

Catherine R. Sloan
Richard L. Fruchterman
Richard S. Whitt

WORLDCOM, INC.
d/b/a LDDS WorldCom
1120 Connecticut Avenue, N.W.
Suite 400
Washington, D.C. 20036
(202) 776-1550

Its Attorneys

April 12, 1996

[2] Comments of LDDS WorldCom, CC Docket No. 95-115, filed September 27, 1995.

[3] Pub. L. No. 104-104, 110 Stat. 56 (1996), to be codified at 47 U.S.C. [[section]][[section]] 151 et seq. ("1996 Act"). For the sake of clarity, LDDS WorldCom will refer to the provisions of the 1996 Act using the specific section citations at which they will be codified.

[4] 1996 Act, Section 254(b)(1).

[5] 1996 Act, Section 254(b)(4).

[6] 1996 Act, Section 254(e); Section 254(b)(5).

[7] 1996 Act, Section 214(e)(1).

[8] Notice at para. 39.

[9] 1996 Act, Section 254(b)(3).

[10] Id.

[11] 1996 Act, Section 254(b)(6); Section 254(h).

[12] Notice at para. 41.

[13] 1996 Act, Section 254(e).

[14] 1996 Act, Section 214(e).

[15] 1996 Act, Section 254(b)(7).

[16] Notice at para. 8.

[17] Dr. Robert Crandall of the Brookings Institution made this same point in his prepared oral presentation to the Federal-State Joint Board at its April 12 open meeting. See Oral Presentation of Dr. Robert Crandall, Senior Fellow, Brookings Institution, before the Open Meeting of the Federal-State Joint Board on Universal Service, Federal Communications Commission, Washington, D.C., April 12, 1996.

[18] 1996 Act, Section 214(e)(1)(A).

[19] 1996 Act, Section 251(c)(3).

[20] Notice at para. 16.

[21] Notice at para. 50.

[22] 1996 Act, Section 254(b)(3).

[23] Amendment of the Commission's Rules and Policies to Increase Subscribership and Usage of the Public Switched Network, CC Docket No. 95-115, Notice of Proposed Rulemaking, issued July 20, 1995.

[24] Comments of LDDS WorldCom, CC Docket No. 95-115, at 3. At the same time, LDDS WorldCom strongly opposed any plan to prohibit the LECs from disconnecting local telephone service for a customer's failure to pay valid, owed long distance charges. LDDS WorldCom showed that such a proposal was unsupported by the evidence, did not constitute a narrow, targeted means of increasing subscribership, and would result in substantially higher collection, bad debt, and related expenses by long distance companies. Id. at 4-8. In addition, market forces unleashed by the 1996 Act will blur the distinction between local and long distance markets, making such a prohibition difficult to comply with in practice.

[25] See Six Myths of Telephone Penetration: Universal Service from the Bottom Up, Rutgers University Project on Information Policy, January 1995, at 2, 12-14.

[26] The Commission also seeks comment on requiring IXCs to offer optional calling plans designed for low-income consumers. Notice at para. 55. LDDS WorldCom believes that such plans are not necessary at this time. Instead, as described in Section III below, the Commission should direct that interstate access charges be brought down to cost, which will lead to lower telephone rates for everyone.

[27] 1996 Act, Section 254(c)(1).

[28] Notice at para. 24.

[29] Notice at paras. 4, 68; see 1996 Act, Section 254(b)(1).

[30] The quality of services initially provided by the incumbent LECs to interconnecting interstate carriers is also important and should be addressed in the FCC's upcoming Section 251 interconnection proceeding.

[31] Notice at para. 4; see 1996 Act, Section 254(b)(1).

[32] 1996 Act, Section 254(b)(1).

[33] 47 U.S.C. [[section]] 36.01 et seq. (1995).

[34] See 1996 Act, Section 254(b)(3).

[35] See Notice at para. 24.

[36] MCI Communications, Inc., NYNEX Corporation, Sprint/United Management Co., and US West, Inc., Benchmark Costing Model: A Joint Submission, CC Docket No. 80-286, filed December 1, 1995.

[37] Notice at paras. 35-36.

[38] Notice at para. 35 n.84.

[39] 1996 Act, Section 254(b)(3).

[40] 1996 Act, Section 254(b)(1).

[41] 1996 Act, Section 254(d).

[42] 1996 Act, Section 153(r)(49).

[43] 1996 Act, Section 153(r)(51).

[44] 1996 Act, Section 254(d).

[45] Notice at para. 119.

[46] LDDS WorldCom also believes that the FCC should take this perfect opportunity to revisit its earlier decisions exempting ESPs from paying access charges (and the concomitant contribution to universal service included in those charges). Among other reasons why there is no longer any justification for this exemption, it is self evident that the ESP industry today is no longer nascent and is fully capable of paying its fair share of access expense.

[47] 47 C.F.R. [[section]] 64.702(a) (1995).

[48] The Notice also seeks comment on whether, as a matter of "public interest," the Commission should exercise its discretion under the statute to extend universal service obligations to "any other provider[s] of interstate telecommunications." Notice at para. 119. Should the FCC decide -- incorrectly -- that the Act doesn't mandate that some types of ESPs must pay universal service funding, in the alternative it should conclude that those ESPs still should be required to contribute to universal service as a matter of public interest.

[49] See 47 C.F.R. [[section]] 64.702(a).

[50] See Amendment of Section 64.702 of the Commission's Rules and Regulations, Second Computer Inquiry, Report and Order, 77 FCC 2d 384, 420 (1980).

[51] See, e.g., NATA Centrex Order, 101 FCC 2d 358 (1985).

[52] 1996 Act, Section 254(b)(4).

[53] LDDS WorldCom also believes that the Commission should take swift action on the pending ACTA Petition, and institute a rulemaking which tentatively concludes that VON service providers are required as a matter of law to pay their fair share of interstate access charges and international accounting rate settlements. See ACTA Petition for Declaratory Ruling, Special Relief, and Institution of Rulemaking, RM No. 8775, filed March 4, 1996.

[54] 1996 Act, Section 254(d).

[55] 1996 Act, Section 254(e).

[56] Notice at para. 123.

[57] 1996 Act, Section 254(j).

[58] Notice at para. 127.

[59] Notice at paras. 128, 130.

[60] Notice at para. 113.

[61] 1996 Act, Section 254(d), (e).

[62] Notice at para. 114.

[63] Notice at para. 115.

[64] See, e.g., LDDS Comments, CC Docket No. 80-286, filed October 28, 1994, at 12-13.

[65] 47 U.S.C. [[section]][[section]] 201(b), 202(a).

[66] 1996 Act, Section 254(e). See also Notice at para. 112.

[67] 1996 Act, Section 254(k).

[68] In his prepared oral presentation to the Federal-State Joint Board at its April 12 open meeting, Ron Binz of the Competitive Policy Institute also stressed this same need for both interim and permanent universal service plans. See Oral Presentation of Ron Binz, Competitive Policy Institute, before an Open Meeting of the Federal-State Joint Board on Universal Service, Federal Communications Commission, Washington, D.C., April 12, 1996.