In the Matter of
Federal-State Joint Board on CC Docket No. 96-45 Universal Service
Of Counsel:
Encarnita Catalan-Marchan
Maria Pizarro-Figueroa
Telefonica Larga Distancia
de Puerto Rico, Inc.
Metro Office Park
Building No. 8, Street No. 1
Guaynabo, PR 00922
Dated: April 12, 1996
TLD'S COMMENTS
TELEFONICA LARGA DISTANCIA DE PUERTO RICO, INC.
Alfred M. Mamlet
Philip L. Malet
Marc A. Paul
STEPTOE & JOHNSON LLP
1330 Connecticut Avenue, N.W.
Washington, DC 20036
(202) 429-3000
Counsel for Telefonica Larga Distancia
de Puerto Rico, Inc.
SUMMARY Telef6nica Larga Distancia de Puerto Rico, Inc. ("TLD") addresses two points raised by the Commission. First, the Commission should require local exchange carriers ("LECs") receiving local access charge payments to contribute to universal service. The Telecommunications Act of 1996 ("Telecommunications Act") requires all telecommunications carriers providing interstate services to contribute to universal service. LECs are telecommunications carriers, that participate in interstate services by providing local access to long distance carriers. Accordingly, LECs should be required to contribute to universal service based on their interstate revenues derived from local access charges (Part 11). Second. the Commission should adopt a universal service contribution methodology based upon a carrier's interstate revenues minus payments to other carriers (Part 111). It should abandon its current subscriber line methodology of funding universal service because that methodology imposes a disproportionate share of universal service costs on some carriers and their customers. Since the subscriber line methodology imposes the same universal service costs for each line regardless of the interstate revenue generated by that line, this methodology discriminates against carriers that serve customers who can least afford to use interexchange service. For example, TLD's universal service costs per dollar of revenue are 252% of those paid by AT&T and 550% of the costs paid by the rest of the long distance industry. Thus, the current methodology imposes the highest burden on the very customers who are supposed to be assisted by universal service. A universal service contribution methodology based upon a carrier's revenues minus payments to other carriers would eliminate this disparity, and ensure that all carriers bear an equitable share of universal service costs. Further, a revenues based methodology would be easier to administer than a subscriber line methodology because it would not require the use of "equivalency ratios" for contributors to universal service. In implementing a revenue-based contribution methodology, the Commission must allow carriers to deduct from gross revenues the payments that are made to other carriers, including local access charges, in order to avoid the problem of double charging interstate revenues for universal service. This is precisely the methodology used by the Commission in assessing regulatory fees.
TABLE OF CONTENTS Page
I. INTRODUCTION...................................................1
II. LOCAL EXCHANGE CARRIERS SHOULD BE REQUIRED
TO CONTRIBUTE TO THE UNIVERSAL SERVICE FUND BASED UPON
THEIR INTERSTATE REVENUES...................................2
III. THE COMMISSION SHOULD ASSESS UNIVERSAL SERVICE CHARGES BASED UPON A
CARRIER'S INTERSTATE REVENUE MINUS PAYMENTS TO OTHER
CARRIERS....................................................4
A. Assessing Universal Service Charges Based Upon A Carrier's Revenues Is
More Equitable Than A Subscriber Line Methodology...........5
B. Assessing Universal Service Charges Based Upon A Carrier's Revenues Is
Easy To Administer..........................................8
C. A Revenue Based Collection Methodology Must Allow Carriers To Subtract
Payments Made To Other Carriers............................10
IV. CONCLUSION....................................................12
Before the
FEDERAL COMMUNICATIONS COMMISSION
Washington, DC 20554
in the Matter of
Federal-State Joint Board on
Universal Service
CC Docket No. 96-45
TLD'S COMMENTS
1. INTRODUCTION
Telefonica Larga Distancia de Puerto Rico, Inc. ("TLD") hereby files these Comments in response to the Commission's Universal Service NPRM.[1] TLD is among the ten largest interexchange carriers in the United States, based on presubscribed lines.[2] TLD's customers are U.S. citizens in Puerto Rico and the U.S. Virgin Islands, most of whom speak Spanish as their native language. TLD's Comments address two points raised by the Commission. First, pursuant to the Telecommunications Act of 1996 ("Telecommunications Act"), local exchange carriers ("LECs") should be required to contribute to universal service because LECs are telecommunications carriers participating in interstate services by providing local access to long distance carriers. A LEC's contribution to universal service should be based on their interstate revenues derived from local access charges.
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1 Federal-State Joint Board on Universal Service, FCC 96-93, CC Docket No. 96-45 (rel. Mar. 8, 1996) ("Universal Service NPRM").
2 Long Distance Market Shares, Fourth Quarter 1995 at Table 4, FCC Common Carrier Bureau Industry Analysis Division (March 1996) (1994 data).
Second, the Commission should adopt a universal service contribution methodology based on a carrier's interstate revenues minus payments to other carriers (Part 111). The current subscriber line methodology of funding universal service imposes a disproportionate share of universal service costs on some carriers. A revenues based methodology is superior to the current methodology because-. (1) it eliminates the disproportionate burden placed on some carriers, ensuring that all carriers bear an equitable share of universal service costs; (2) it is easy to administer for the expanded class of carriers required to contribute to universal service; and (3) it avoids the problem of double charging interstate revenues for universal service by allowing carriers to deduct from gross revenues the payments that are made to other carriers, including local access charges.
II. LOCAL EXCHANGE CARRIERS SHOULD BE REQUIRED TO CONTRIBUTE TO THE UNIVERSAL SERVICE FUND BASED UPON THEIR INTERSTATE REVENUES
The Universal Service NPRM asked for comment on which companies should be required to contribute to universal service.[3] The Telecommunications Act makes it clear that LECs are required to contribute. The starting place for this analysis is the Telecommunications Act, which provides that:
Every telecommunications carrier that provides interstate telecommunications shall contribute, on an equitable and nondiscriminatory basis .... [4]
As a provider of telecommunications services, a LEC meets the statutory definition of a "telecommunications carries' because it offers "telecommunications for a fee directly to
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3 Universal Service NPRM at 111 8-19.
4 47 U.S.C. [[section]] 254(d) (emphasis added).
the public. . . ."[5] Congress used the word "every" to emphasize that all telecommunications carriers were required to contribute to universal service.[6] Accordingly, LECs that provide interstate telecommunications are required to contribute to universal service on a nondiscriminatory basis. It is well settled that LECs providing local access service are providing interstate services.[7] Therefore, the Telecommunications Act requires all LECs which participate in interstate services by providing local access to long distance carriers to contribute to universal service on a nondiscriminatory basis.
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5 47 U.S.C. [[section]][[section]] 153(49), (51).
6 The only exception permitted by Congress is for carriers whose telecommunications activities are de minimis. 47 U.S.C. [[section]] 254(d).
7 See In the Matter of MTS and WATS Market Structure, 77 F.C.C.2d 224, 236 (1 980) ("Inasmuch as we have decided to prescribe access charges in accordance with a formula that can be used to allocate any aggregate interstate exchange plant costs which may be determined under any Separations Manual formula, there is no reason to refer access charge questions to a joint board. The origination and termination of interstate or foreign communications is interstate or foreign service. This Commission has exclusive jurisdiction to regulate charges for such services"); Ameritech Operating Companies Petition for a Declaratory Ruling and Related Waivers to Establish a New Regulatory Model for the Ameritech Region, FCC 96-58 at 5 (rel. Feb. 15, 1996) ("Ameritech's services, known as interstate access services, enable IXC's to originate and terminate interstate long-distance calls and are regulated by this Commission. Part 69 of the Commission's Rules governs the rate structure and pricing of interstate access charges. . . ."); Assessment and Collection of Regulatory Fees for Fiscal Year 1996 (NPRM) (MD 96-84) ("1996 Regulatory Fees NPRM") 34 (proposing that companies be assessed regulatory fees on the basis of interstate revenues).
Ill. THE COMMISSION SHOULD ASSESS UNIVERSAL SERVICE CHARGES BASED UPON A CARRIER'S INTERSTATE REVENUE MINUS PAYMENTS TO OTHER CARRIERS
The Commission should calculate a carrier's universal service contribution based on the carrier's revenues minus payments to other carriers.[8] A revenue based contribution methodology is superior to the subscriber line methodology for three reasons. First, the revenues methodology assesses the same proportion of revenue for universal service charges for each carrier. The subscriber line methodology discriminates because it does not. Indeed, the subscriber line methodology conflicts with the goals of universal service by imposing a heavier financial burden on carriers that serve low-volume users, precisely the users the universal service program is intended to support. Second, a revenues-based methodology will be easier to administer. The Telecommunications Act broadens the category of contributors to universal service. As a result, the Commission would have to adopt "equivalency ratios" if a per-line or per-minute methodology is adopted. In contrast, a revenues methodology can be used for all contributors to the fund without resorting to inherently arbitrary and cumbersome "equivalency ratios." The Commission has already acknowledged the administrative benefit of a revenues based methodology in assessing regulatory fees and contributions to the Telecommunications Relay Services. Third, by subtracting payments to other carriers, a revenue based methodology will avoid the problem of double charging carriers for universal service. The Commission previously adopted this important refinement in assessing regulatory fees.
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8 Id. at 123. The Universal Service NPRM requests comment on the methodology for assessing universal service charges. Universal Service NPRM at 125.
A. Assessing Universal Service Charges Based Upon A Carrier's Revenues Is More Equitable Than A Subscriber Line Methodology
The Telecommunications Act states that:
All providers of telecommunications services should make an equitable and nondiscriminatory contribution to the preservation and advancement of universal service.[9]
In order to avoid discrimination among telecommunications carriers, the Commission should assess universal service charges based on a fixed proportion of the carrier's revenues not a carrier's subscriber lines. Currently, the Commission utilizes a subscriber line contribution methodology to collect universal service funds.[10] This methodology is not competitively neutral. The Commission's current methodology discriminates against carriers like TLD who serve customers that generate relatively low revenues per line. Two years ago, AT&T demonstrated in a petition for rulemaking that the subscriber line methodology had the effect of requiring AT&T to pay much greater universal service costs per revenue dollar than other interexchange companies."[11] TLD, however, incurs much higher universal service costs per revenue dollar than even AT&T because it receives far less revenues per subscriber line. Table 1 compares the average monthly revenue per subscriber line for TLD, AT&T and the other interexchange carriers."[12] TLD's average monthly revenue per line is only 41% of AT&Ts and 20% of other interexchange carriers.
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9 47 U.S.C. [[section]] 254(b)(4) (emphasis added).
10 47 C.F.R. [[section]][[section]] 69.116, 69.117 (1995).
11 See AT&T Petition for Rulemaking, CC Docket Nos. 78-72 and 80-286 at 7-1 0 (filed Nov. 23, 1993).
12 Calculations for universal service costs include contributions made to the Universal Service Fund and contributions for Lifeline Assistance. For 1994, universal service charges per subscriber line were as follows: (1) from January to June 1994 - $.44080 for Universal Service Fund and $.0841 0 for Lifeline Assistance; and (2) from July to December 1994 - $.42950 for Universal Service Fund and $.0901 0 for Lifeline Assistance. The revenue and subscriber line data for AT&T, and the other interexchange carriers, were calculated from the Commission's Report: Long Distance Market Shares Fourth Quarter 1995, Industry Analysis Division, Common Carrier Bureau at Tables 4 & 5 (March 1996). 1994 universal service costs were calculated based upon 1993 subscriber lines. The numbers for TLD are based upon the following data: (1) universal service costs of $2,775,792 in 1994 based on 442,922 subscriber lines reported in 1993, (2) long distance revenues in 1994 of $64,111,759; and (3) 441,467 subscriber lines in 1994.
TABLE 1
AVERAGE MONTHLY REVENUE PER SUBSCRIBER LINE
(1994)
TLD AT&T Other IXCs
Average Monthly Revenue $12.10 $29.79 $61.34
Per Subscriber Line
Figure 1 (Bar graph deleted for online version)
Universal Service Costs (Cents)/Revenue DollarTLD AT&T Other IXCs 4.33 1.715 0.787
TLD's universal service costs per revenue dollar are 252% greater than AT&T and 550% greater than other interexchange carriers. Clearly, the subscriber line methodology does not meet the statutory command for an "equitable and nondiscriminatory" basis of assessing contributions to universal service. The subscriber line contribution methodology also discriminates against the very customers universal service programs are intended to support. The per capita income in Puerto Rico of $7,047 [13] is less than one-third of the national average of $21,809 [14] and even less than one-half of the amount in the lowest state, Mississippi, which is $15,838.[15] However, since TLD has a higher universal service cost per revenue dollar than other carriers, its Puerto Rican customers must shoulder a greater
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13 P.R. Planning Board, Economic Report to the Governor (1 994) (1994 data).
14 1996 Information Please Almanac at 53 (1996) (1994 data).
15 Id. at 62 (1994 data).
universal service burden than any other customers in the country. Thus, the subscriber line contribution methodology disproportionately increases the cost of service to low-income consumers, thereby making long distance telecommunications even less accessible to low-income families -- a result contrary to the goals of universal service. Further, basing universal service costs on a carrier's subscribed lines creates a disincentive for a carrier to seek low-volume customers because the margin on these customers is reduced more than it would be if the Commission used a revenues methodology. This disincentive would disappear with a revenue methodology because the effect of the universal service contribution on a carrier's margins would be the same regardless of the amount of revenue generated.
B. Assessing Universal Service Charges Based Upon A Carrier's Revenues Is Easy To Administer
Assessing universal service charges based upon a carrier's revenue is not only equitable, but easier to administer than a subscriber line methodology. The Telecommunications Act significantly expands the class of those required to contribute to universal service from interexchange carriers to all telecommunications carriers. As shown in Part 11, LECs are now required to contribute to universal service. Similarly, other telecommunications carriers will be required to contribute. In addition, the Telecommunications Act authorizes the Commission to require contributions from "[a]ny other provider of interstate telecommunications. . . "[16] As the class of universal service contributors expands from interexchange carriers to all telecommunications carriers, the Commission needs a methodology that treats all contributors equitably. Since a subscriber line generates different interstate revenue streams from IXCs, LECs, CMRS providers and others, any attempt to impose
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16 47 U.S.C. [[section]] 254(d).
a per-line charge will lead to endless bickering over whose lines should be assessed the most. The Commission acknowledged that it could institute "equivalency ratios" ,to resolve these incongruities.[17] However, calculating "equivalency ratios" would be inherently arbitrary. In addition, the Commission's calculation of the ratio is likely to be the subject of intense and constant criticism by telecommunications carriers. By contrast, a revenue methodology is more easily administered because all carriers providing interstate services generate interstate revenues. Instead of calculating equivalency ratios for each of these carriers, the Commission can simply require each carrier to contribute a fixed proportion of their interstate revenue to universal service. Indeed, the Commission has already recognized the administrative benefits of using a revenue-based contribution methodology over a subscriber line methodology in other areas. In the 1995 Regulatory Fees Order, the Commission decided to assess regulatory fees using a gross revenue methodology (less payments made to underlying carriers) over a subscriber line methodology because it concluded that: A revenue based allocation will effectively spread the cost recovery burden of the fee requirement in proportion to the benefits realized by those carriers subject to (the Commission's] jurisdiction. Properly administered, a gross revenues methodology will ease administrative burdens of carriers in calculating fee payments, provide reliable and verifiable information upon which to calculate the fee and equitably distribute the fee requirement in a competitively neutral manner.[18]
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17 Universal Service NPRM at 124.
18 Assessment and Collection of Regulatory Fees for Fiscal Year 1995/Price Cap Treatment of Regulatory Fees Imposed by Section 9 of the Act, 1 0 FCC Rcd 13512, 13558 (1995) ("l995 Regulatory Fees Order"). In the same proceeding, it was pointed out that the National Exchange Carrier Association ("NECA"), the organization responsible for universal service collection and distribution, favored a revenue based contribution methodology as well. Id. at 13557 ("NECA states that the TRS model [a revenue based model used in collection for telecommunications relay services] would ensure that the carriers Subject to the fee would be equitably charged through use of an interstate revenue basis, easily administered and based on externally verifiable data.").
In the same proceeding the Commission acknowledged the difficulty of subscriber line and per minute calculations by stating that A revenue based methodology avoids the calculation problems inherent in both the customer unit [number of presubscribed lines] and minutes of use alternative and permits the assessment of fees without any need to rely upon assumptions and projections.[19]
The Commission's recent 1996 Regulatory Fees NPRM stresses that all interstate service providers (including interexchange carriers, local exchange carriers,, competitive access providers) can be assessed at the same percentage of gross revenues adjusted for payments to other carriers.[20]
C. A Revenue Based Collection Methodology Must Allow Carriers To Subtract Payments Made To Other Carriers
In assessing charges based upon a carrier's gross revenues, the Commission must allow a carrier to subtract payments made to other carriers in order to avoid double-charging interstate revenues. In deducting payments to other carriers from gross revenues, the deductible payments should include access charge payments made to LECs since LECs are required to make contributions based on these
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19 Id. at 13558.
20 1996 Regulatory Fees NPRM paragraph 34. The Commission also adopted a contribution methodology based upon revenues in recovering costs for the Telecommunications Relay Service ("TRS"). Telecommunications Relay Services, and the Americans with Disabilities Act of 1990, 8 FCC Rcd 5300, 5301-02 (1993).
revenues. The Commission should also allow a similar deduction for the underlying costs of interexchange resellers. In its 1995 Regulatory Fees Order, the Commission recognized that these deductions are necessary to avoid double counting.[21] In that Order, the Commission stated in the context of interexchange resellers that "to avoid imposing a double payment burden on resellers, we will permit interexchange carriers to subtract from their reported gross interstate revenues any payments made to underlying carriers for telecommunications facilities or services."[22] The Commission recently confirmed this methodology in the 1996 Regulatory Fees NPRM:
In order to avoid imposing any double payment burden on resellers, we will permit carriers to subtract from their gross interstate revenues, as reported to NECA in connection with their TRS contribution, any payments made to underlying common carriers for telecommunications facilities and services, including payments for interstate access service, that are sold in the form of interstate service.[23]
Similarly, the Commission's methodology for universal service contributions must allow interexchange carriers to deduct payments for interstate access made to LECs in order to avoid double payment of universal service charges.
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21 See Regulatorv Fees Order, 10 FCC Rcd at 13559.
22 Id.
23 1996 Regulatory Fees NPRM at App. F, 32 (emphasis added).
IV. CONCLUSION Based on the foregoing, the Commission should: (1) require LECs receiving local access charge payments to contribute to universal service based on their interstate revenues derived from local access charges: and (2) adopt a universal service contribution methodology based upon a carrier's interstate revenues minus payments to other carriers.
Dated: April 12, 1996
Of Counsel:
Encarnita Catalan-Marcha\n
Maria Pizarro-Figueroa
Telef6nica Larga Distancia
de Puerto Rico, Inc.
Metro Office Park
Building No. 8, Street No. 1
Guaynabo, PR 00922
Respectfully submitted,
TELEFONICA LARGA DISTANCIA
DE PUERTO RICO, INC.
Alfred M. Mamlet
Philip L. Malet
Marc A. Paul
STEPTOE & JOHNSON LLP
1330 Connecticut Avenue, N.W.
Washington, DC 20036
(202) 429-3000
Counsel for Telefonica Larga Distancia
de Puerto Rico, Inc.
CERTIFICATE OF SERVICE
I, Sandra R. Hammond-Murdico, do hereby certify that a copy of the foregoing TLD's Comments has been sent, via first class mail, postage prepaid, (or as otherwise indicated) on this 12th day of April, 1996 to the following:
[Service list deleted from online version.]