Before the
FEDERAL COMMUNICATIONS COMMISSION
Washington, D.C. 20554
In the Matter of ) ) Federal-State Joint Board on ) CC Docket No. 96-45 Universal Service )
COMMENTS OF THE SOUTHERN NEW ENGLAND TELEPHONE COMPANY
The Southern New England Telephone Company respectfully submits these comments to respond to the Federal Communications Commission's (Commission's) NPRM on Universal Service.[1] These comments focus on the underlying concepts to be addressed in establishing any subsidy program as we recognize that the goal of providing universally available access to telecommunications services must permeate all of the proceedings necessary to implement the Telecommunications Act of 1996.
I. Introduction Within the past two years the State of Connecticut has opened all of the telecommunications markets in the State to competition. SNET has been a major industry participant in supporting this evolution as well as a major recipient of the effects of this competition. We generally concur and support the comments being filed by the United States Telephone Association on this NPRM as to the point by point responses requested. In general, we believe that any subsidy program should be targeted to the service consumer rather than the service provider, and that the states, because of their understanding of the local service market, may be in the best position to evaluate and
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1. In the Matter of Federal-State Joint Board on Universal Service, Notice Of Proposed Rulemaking and Order Establishing Joint Board (NPRM) CC Docket No. 96-45, released March 8, 1996.
implement, where necessary, subsidy programs. Our comments will focus on the information we have learned as a result of the Connecticut transition to competition and our belief that any subsidy mechanism should be explicit, carefully targeted, competitively neutral and appropriate In size and scope to the jurisdiction ordering and administering the subsidy. To the extent possible, the states should be allowed to develop and administer appropriate subsidy mechanisms to further the goals of the Federal legislation as they relate to universal service.
The Telecommunications Act of 1996 (the Act) signaled an end to the era of monopoly telecommunications providers, setting the stage for sweeping changes in the telecommunications industry across the nation, just as passage of Public Act 94-83, An Act Implementing the Recommendations of the Telecommunications Task Force, did for Connecticut almost two years ago. The experience in Connecticut to date may prove helpful to the Commission and the Joint Board in implementing the Act, and, in particular, our experience in implementing the state legislation, we have identified those objectives that are essential to any universal service subsidy mechanism if it is to effectively achieve its goals while not impeding competition. The subsidy mechanism must be explicit, competitively neutral, carefully targeted, and the need for the subsidy must be proven. Further, any subsidy mechanism must be appropriate to the jurisdiction, i.e., a state should recover costs assigned to the federal jurisdiction. The success of any subsidy program requires that these principles be thoroughly addressed and carefully balanced with the public benefits that competition offers for society. Our experience in Connecticut offers a useful model that may assist the Commission in implementing the federal legislation.
II. The establishment of extensive support mechanisms is antithetical to moving towards a competitive environment.
The Act is substantially in concert with the legislation enacted by the Connecticut State Legislature in 1994, the first such state legislation to open a statewide local service market to competition. Both the Act and the Connecticut legislation have common goals to ensure high quality affordable services are made available to consumers, and to promote efficient and advanced infrastructure development, while breaking down regulatory barriers and promoting the development of effective competition. The Connecticut Department of Public Utility Control (CDPUC) is in the forefront nationally in broadly authorizing exchange and intrastate access competition for all market players including facilities based providers and resellers. For nearly two years, SNET has worked cooperatively with the state legislature, the CDPUC, and the industry to successfully implement the introduction of competition in Connecticut, including local service competition, while continuing to balance these initiatives with the objective of the legislation to ensure the universal availability and accessibility of high quality, affordable telecommunications services to all residents and businesses in the state.
As a result of the proceedings with the CDPUC to implement the 1994 state legislation, the Connecticut telecommunications landscape now looks quite different from other states. Seven providers are certified to provide local service and over I 00 providers are certified to provide intrastate/intralata toll service. Additionally, fifty percent of the state has been converted to equal access for intrastate toll service with the remainder of the state to be converted by year end. The implementation of the state legislation in Connecticut provides a good basis of experience which can be utilized in implementing the recent federal Telecommunications Act, as the issues that have been and continue to be addressed include unbundling, competitive provision of local service, and universal service.
The CDPUC has completed separate proceedings on the functional definition of basic telecommunications service, continuation of the existing state Lifeline Service, and a discussion of the underlying concepts and general framework of a universal service program should one be deemed necessary.[2] The CDPUC has recognized that a careful review of the impact of the recent market changes, as well as the cost structure and related prices of the incumbent Local Exchange Carrier (LEC) is needed in order to assess the benefits of establishing a state Universal Service Fund. In fact, based on data through November 1995, Connecticut already has one of the highest telephone penetration rates in the nation of 96.9%.[3] The CDPUC is still in the process of evaluating the need for a Universal Service Fund for the State.
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2 Docket No. 94-07-07 Decision released 2/28/95 provided as Attachment 1. Docket No. 94-07-08 Decision released 3/31/95 provided as Attachment 2. Docket No. 94-07-09 Decision released 5/3/95 provided as Attachment 3. appeals pending. Metro Mobile CTS of Fairfield County, Inc. et al, v. Connecticut DPUC (CV 95-0555232 S)(Dockets 94-07-08, 94-07-09).
3 FCC Industry Analysis Division. Common Carrier Bureau, Telephone Subscribership in the United States (Data Through November 1995), released February 1996, Table 2.
In the State of Connecticut the issue of establishing a universal support mechanism to replace the past implicit mechanisms is not a foregone conclusion. The CDPUC wisely recognizes that the benefits of establishing such a mechanism must be carefully weighed against the competitive impacts. In its Decision in Docket No. 94-07-08, the CDPUC states "Such a Universal Service Program fund would only be established if and when the Department determined that supplemental funding to that already available to telecommunications services providers and to the public is necessary."[4] Similarly, the Act refers the issue of the continuation or establishment of a Universal Service Fund (USF) to a Joint Board, but does not mandate the continuation of such a Federal Fund. While it Is necessary to ensure universal service exists at each stage of increased competition, extensive competition may very well obviate the need for a support mechanism. Therefore, in assessing the need for a subsidy mechanism, the Commission should insure that the mechanism proposed does not harm the very competition necessary to eliminate the need for universal service funding.
III. Any subsidy program must be explicit, competitively neutral, and carefully targeted in order to coincide with the objective of promoting competition.
As competition develops, it is imperative that the incumbent LEC not be disadvantaged in the market. Any universal service support mechanisms must ultimately be made explicit. To effectively coexist with competition, all market participants must contribute, and the funding mechanism must be competitively neutral. The implicit subsidies embedded in today's rates must be made explicit in order to develop a competitively neutral funding mechanism for universal service. The incumbent
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4 Docket 94-07-08 at Section IV.H.
LECs have subsidies built into their rates which promote universal service by ensuring that rates for basic local service are kept generally affordable in that the rates have generally been averaged across an entire study area and have been structured in ways that ensure that cross subsidization among services exists. Additionally, incumbent LECs have been required to provide Long Term Support payments in order to ensure that nationwide interstate carrier common line access rates are substantially uniform across the nation. Further, interexchange carriers have implicit subsidies included in the rates that they pay for access. These types of implicit funding mechanisms cannot coexist with effective competition, and should be phased out over time. If any subsidy program is needed, the target for the support must be clearly identified, and the mechanism employed to provide the subsidy must be made explicit and competitively neutral. For example, the current federal and state programs for affordability (Lifeline and Link Up) are examples of explicit universal service support mechanisms that clearly promote universal service by ensuring that end users are provided the financial resources to connect to the public switched network when appropriate financial need exists.
As stated above, the Act is generally consistent with the legislation enacted in Connecticut in 1994. As a result of these Acts it is necessary to review and change, where necessary, regulations that are contrary to the objectives. In this context, it is important to ensure that requirements of any universal service program are less burdensome and require less regulation than exists today, in order to encourage market forces to drive the market decisions required in order to migrate to effective competition. Changes made to the existing Federal universal service mechanisms must not merely overlay additional requirements on what is in place already. but rather, minimize the regulation of the incumbent providers and establish a level playing field with the new market entrants.
IV. The Commission should address the universal service needs from an interstate perspective and allow the States to address state universal service requirements.
The Act requires that there be "specific, predictable and sufficient Federal and State mechanisms to preserve and advance universal service."[5] The Commission is responsible for determining what services are to be funded by a Federal mechanism versus a State mechanism. The existing federal USF has served a useful purpose in facilitating the major industry changes after divestiture. However, it may not be meaningful or wise to continue the USF in its current structure in the future, as the transition toward a fully competitive marketplace evolves. Any subsidy program, however explicit in nature, will create distortions in the market regardless of the extent of competition. Therefore, it is now appropriate to consider restructuring the USF to further the goals of the Act.
While it may be appropriate for the Commission to establish minimum requirements for addressing Universal Service in order to promote the principles of the Act on a nationwide basis, it is not appropriate for the Commission to construct a Federal Universal Service Fund that supports anything other than the interstate portion of the minimum requirements for Universal Service. The Commission has jurisdiction over interstate services and can appropriately address the Act as it relates to these services. However, the States have jurisdiction over intrastate services, and to the extent that they are now obligated, by law, to preserve universal service, they should be allowed to do so for all intrastate services. Furthermore, each state situation may be unique in that states
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5 Act, Section 254(b)(5).
may have varying levels of competition, may be at different stages in opening up markets to competition, and may be instituting different pricing plans and policies.
The Act requires the establishment of explicit support mechanisms to provide access to advanced telecommunications services for schools, libraries, and healthcare providers in addition to any mechanisms required to generally ensure universal service accessibility. Connecticut is not unique in its past efforts to address the general availability of universal service as well as the promotion of advanced telecommunications services to public institutions. Other states as well, have already made commitments to promoting and supporting bringing the advantages of the information superhighway into public institutions such as schools. These initiatives may be at varying stages depending on the state.
The advances made by certain states in connecting public institutions to the information superhighway must be considered in the development of any such program on a nationwide basis. This in itself could be a formidable process in order to ensure that a state that has initiated programs is not disadvantaged. Ultimately, it may become clear that mechanisms that support public institutions' connectivity to the information superhighway may be best entirely managed at the state level. This would more easily allow the public institutions themselves to become involved in the entire process.
V. Summary
The State of Connecticut is unique in that it has implemented legislation similar to the Federal legislation in 1994. Many of the issues in this proceeding have already been addressed in Connecticut, and are at various levels of being addressed in many other states. The experience of dealing with these issues among the states should provide a strong base of knowledge as these matters are considered by the Commission and the Joint Board.
The principles which we in Connecticut have discovered to be necessary in order to ensure universal service while promoting the development of effective competition include a careful review of the necessity for a universal service support mechanism. Should a support mechanism be deemed appropriate, it must be explicit, competitively neutral, and carefully targeted. Additionally, with the promotion of competition, it is important that the incumbent providers not be disadvantaged. A level playing field for all market participants is required to effectively promote competition.
Since 1994 other states have also begun to address similar issues of competition and universal service. SNET believes that in order for universal service availability to all sectors of the market to become a reality, it is imperative that the States be allowed the flexibility to review and establish, where necessary, funding mechanisms to be utilized to support the goals of the Act, including promoting competition. However, it may be appropriate for the Commission to establish general concepts on which any universal service mechanism should be based in order to effectively balance the goals of universal service with the evolution of a competitive market place. Remaining issues should be left to the states, since their local perspective puts them in the best position to insure local needs are fully addressed.
Respectfully submitted,
The Southern New England Telephone Company
By:
Anne U. MacClintock
Vice President - Regulatory Affairs & Public Policy
227 Church Street
New Haven, Connecticut 06510
(203) 771-8865
April 12,1996