In the Matter of 		   *	CC Docket No. 96-45
Federal-State Joint Board on 	   *	FCC 96-93
Universal Service		   *
				   *

To: The Federal-State Joint Board on Universal Service

COMMENTS OF THE WEST VIRGINIA CONSUMER ADVOCATE
ON THE NOTICE OF PROPOSED RULEMAKING
ON UNIVERSAL SERVICE ISSUES

On March 8, 1996, the Federal Communications Commission ("FCC"or "Commission") issued a notice of proposed rulemaking ("NOPR") on universal service and established a Federal-

State Joint Board ("Board") to consider the comments of interested parties concerning universal service. Under the NOPR the Board is to define the services to be included in the definition of universal service; to determine how universal service should be supported; and to recommend changes in FCC regulations necessary to implement the universal service mandates of the Telecommunications Act of 1996 ("the Act"). See 61 Fed. Reg. 10499 (March 14, 1996). The Consumer Advocate Division of the Public Service Commission of West Virginia ("West Virginia Consumer Advocate" or "WVCAD") hereby submits the following comments in response to the questions posed and issues raised by the FCC.

The West Virginia Consumer Advocate is required by statute and regulation to represent the interests of West Virginia telecommunications ratepayers in rate cases and related proceedings affecting rates. West Virginia Code [[section]]24-1-1(f)(2). Resolution of the issues relating to universal service will have a profound impact on rates and telecommunications service in West Virginia. The names and address of the counsel for the West Virginia Consumer Advocate in this proceeding are as follows:

Terry Blackwood
Billy Jack Gregg
West Virginia Consumer Advocate
700 Union Building
Charleston, West Virginia 25301

All correspondence, notices, reply comments and other documents should be sent to the above address. In these comments, the WVCAD first presents an introduction briefly describing the state of telecommunications in West Virginia, and an overview of the universal service issues presented by the advent of competition in all areas of telecommunications, as fostered by the Act. The WVCAD then responds to specific requests for comments posed by the Commission. These comments are arranged by the paragraph number appearing in the NOPR.

I. Introduction

West Virginia is a rural state with low population density. The total state population estimated by the Census Bureau in 1992 was 1,808,860, with the largest city having less than 65,000 people. Population density is only 75.1 person per square mile.[1] Telephone service is currently enjoyed by 90.6% of the households in West Virginia. Stated another way, one in ten households in West Virginia still do not have telephone service.

Local exchange telephone service in West Virginia is provided to over 864,542 access lines by seven companies. The two largest local exchange carriers (LECs) in West Virginia - Bell Atlantic and Citizens TeleCom - account for over 98% of the access lines in the state.[2] In spite of the rural nature of the state, the telecommunications network in West Virginia providing local exchange service is ubiquitous and technologically advanced. Almost 99% of the access lines in the state are served by digital switching, and over 80% are served Signalling System-7 (SS-7) equipped switches which allow provision of enhanced telephone services, such as call-

waiting and call-forwarding. Hundreds of miles of fiber optic interoffice trunks are already deployed, and fiber lines are being integrated into the local distribution network. Under the World School program, over 80% of all West Virginia schools will have direct, high-speed access to the internet by the end of 1996.

As a result of the expansion of a technologically advanced telecommunications network throughout the state and policies encouraging expanded local calling areas, local service is amazingly uniform in West Virginia. Beginning in 1988 local calling areas have been expanded to include, at a minimum, all areas served by central offices within a 22-airmile radius of a subscriber's home exchange central office. Rate and service differentials between urban and rural customers have been eliminated. Less than 1% of local access lines in the state are currently served by party lines.

Rate structures for local service in West Virginia provide several options for local exchange customers, mixing measured and flat-rate service. Rates for local service vary little from company to company. Over 98% of West Virginia's telephone subscribers pay the following monthly rates[3]:

				                  Basic Cost   Percent
Residence   Type of Service	    Basic Cost[4] with SLC[5]Subscribers

  Plan 1    All measured		$ 6.00	  $ 9.50	 16%
  Plan 2    Home flat, rest measured	$15.00	  $18.50	 22%
  Plan 3    More flat, rest measured	$22.00	  $25.50 	 53%
  Plan 4    All flat			$29.00	  $32.50      	  8%


					           Basic Cost	Percent
Business    Type of Service	    Basic Cost[6] with SLC[7]	Subscribers

  Plan 1    All measured		$24.50	  $30.50          61%
  Plan 2    More flat, rest measured	$55.00	  $61.00          39%

The Act has opened virtually all areas of telecommunications to competition. In so doing, the Act required that support for universal service be made an explicit and non-

discriminatory obligation of all telecommunications carriers. While the opening of all services to competition holds the promise of lower rates and greater variety of telecommunications services for some customers, the potential dismantling of the existing support system threatens the very affordability of all telecommunications services in high cost areas. The West Virginia Consumer Advocate can accept that not all consumers will be benefitted by the advent of competition, so long as none are made worse off. In designing new mechanisms under the Act to enhance universal service, it is absolutely imperative that the Board and the Commission preserve at least the level of support provided by the existing USF. Unless this is achieved, the affordable access to the telecommunications network, already in place, will be lost in West Virginia and other high cost areas of the nation, to the detriment of all telecommunications users.

II. Response to Requests for Comments

A. Support For Rural, Insular and High-Cost Areas and Low-Income Consumers

What Services to Support

Paragraph 8 - The Commission specifically asks: "...that commenters address whether and to what extent concerns for low-income consumers or those in rural, insular, or high cost areas can or should be articulated as additional universal service principles pursuant to Section 254(b)(7)..." The WVCAD strongly agrees that concerns for, and protection of, low-income consumers and those in rural, insular and high cost areas should be explicitly set forth as a basic principle of universal service. These specified consumers and areas are entitled to support in maintaining "core" services included in the definition of universal service. Loss of these specified consumers and areas would render the remaining telecommunications network less valuable for all users and would adversely affect the national economy.

Paragraph 16 - The WVCAD fully agrees with the Commission's proposal to designate (1) voice grade access to the public switched network, with the ability to place and receive calls; (2) touch tone; (3) single party service; (4) access to emergency services (911); and access to operator services as core services which should receive universal service support. The above services substantially meet the criteria found in Section 254(c)(1) of the Act.

Paragraph 23 - In addition, the WVCAD believes the following services should receive universal support, based upon the four criteria specified in Section 254(c)(1): (1) relay services (excluding subscriber premises equipment); (2) an annual "white pages" directory listing or its functional equivalent; (3) directory assistance; and (4) equal access to toll carriers which serve the subscriber's exchange. All of the above services have been included in a definition of "basic local exchange services" by the West Virginia Telecommunication's Task Force in an April 1, 1996 report to the staff of the Public Service Commission of West Virginia ("WVPSC") setting forth proposed rules for local exchange competition in West Virginia. See Attachment 1. The Task Force, which consists of local exchange carriers, interexchange carriers, cable operators, the Staff of the Public Service Commission of West Virginia, the WVCAD and others, reached consensus that all of the above-referenced services constituted "basic" or core services to telephone subscribers in West Virginia at this time. In regard to Section 254(c)(1) criteria, all of the services are (or are being) deployed in West Virginia's telecommunications networks by telecommunications carriers and have been found by WVPSC decisions or rules to be consistent with the public interest, convenience and necessity.

In particular, access to interexchange services should be included among those services receiving universal service support in rural, insular and high-cost areas. Section 254(b)(3) of the Act expressly refers, in part, to access to interexchange services in rural and high-cost areas as a universal service principle. In a largely rural state like West Virginia, interexchange access is often required for consumers to initiate calls to educational and health care providers. In a rural environment telecommunications to the closest schools, hospitals or courthouses may require a toll call. Interexchange access should be, therefore, a basic, core service.

How to Implement

Paragraph 24 - As discussed in paragraph 45 below, the WVCAD believes the relevant "study area" for determining universal service support pursuant to this Commission's rules should continue to be the entire service territory of a LEC within a particular state. Nevertheless, the WVCAD believes that the primary focus of support for rural, insular, and high cost areas should be residential customers. Expanding universal support to business users would dilute the pool of potential universal support available to those most in need, and most susceptible to increases in basic monthly rates for access to the telecommunications network. Unlike the residential class, businesses have the pricing flexibility to meet telecommunications's costs. For example, even single-line businesses users can make tax deductions for telephone service as a cost of doing business, while residential consumers can not. Finally, given the experience to date, it is likely that business users will continue to be selectively targeted by telecommunication competitors and will, therefore, receive the benefits of competition before residential users.

The advent of competition will result in the decline of cost based regulation, and an emphasis on competition through prices, or control of prices. As a result, universal service support should be calculated based primarily on outputs, i.e., the price of services to end-users absent support should determine the support levels. Price of services is explicitly contemplated by the first universal service principle detailed in Section 254(b)(1) of the Act, i.e., "... quality services should be available at just, reasonable, and affordable rates." [Emphasis added.] Only by calculating support based on outputs can the Commission ensure that rates are just, reasonable, and affordable.

Paragraph 25 - The WVCAD strongly believes the Commission should determine rate levels as being "affordable" based upon each jurisdiction's currently existing local exchange rates. The Commission should create a rebuttable presumption that existing local rates are "affordable" and that any increase over existing local exchange rates is neither just nor reasonable. This would not only ensure a basic level of residential consumer protection, but also ensure that the alleged benefits of telecommunications competition are not distorted or misplaced. By equating existing rates with "affordable" rates, the Commission could help ensure that universal service would not be threatened by unforeseeable competitive events in the market place. In addition, current rates would become an appropriate benchmark or standard that would aid the Commission in assessing whether "affordable" service is being provided to all Americans. (Cf. Para 4 of the NOPR).

In the alternative, the Commission could gauge "affordable" rates by reference to the nationwide average of rates. As stated in footnote 39 to the NOPR: "The current USF program is designed to 'preserve universal service by enabling high cost companies to establish local exchange rates that do not substantially exceed rates charged by other companies.'" MTS and WATS Market Structure, Third Report and Order. 93 FCC2d 241 (1983). The goal should be the same for any new or enhanced USF. If a telecommunications carrier's rates are within 115% of the national average (the current trigger for the USF), the rates can be deemed to be affordable. The nationwide average can be recalculated periodically for purposes of defining affordable.

Paragraph 26 - It is the WVCAD view that support should be based on achieving specific end-user prices. As previously mentioned this could be measured in terms of the national average for rates.

Paragraph 28 - The WVCAD believes the existing universal fund mechanism operating through part 36 rules is an "explicit" support mechanism as contemplated in Section 254(e). Webster's New Collegiate Dictionary defines the term "explicit" as "free from all vagueness and ambiguity." (1981 ed.) The existing part 36 universal fund mechanism is neither vague nor ambiguous. These rules place on carriers an obligation to support universal service in a very explicit and non-discriminatory manner.

Paragraph 30 - The WVCAD believes the Commission should continue to use its jurisdictional separations rules to subsidize LECs with above-average loop costs and the local switching costs of small LECs. The Commission's jurisdictional separations rules meet Webster's definition of "explicit." The system has worked well and all "eligible telecommunications carriers" can easily be integrated into the process.

Transition Issues

Paragraph 40 -The WVCAD urges the Commission to extend the cap on the rate at which the Universal Service Fund may grow, at least until the completion of the Joint Board and Commission's deliberations in this proceeding. Moreover, nothing in the Act prohibits the Commission from contemplating a transition period for carriers, particularly recipients of subsidies achieved through separations rules.

Paragraph 45 - The WVCAD believes that "study area" should continue to be defined as the existing LEC service area in a given state. This definition is necessary for the efficient implementation and administration of national universal service support as ordered and administered by this Commission. On the other hand, states acting within their powers under Section 214(e)(5) of the Act, may define different "study areas" for purposes of state universal service funds.

B. Support for Schools, Libraries and Health Care Providers

What Services to Support

Paragraph 78 - Under the plain wording of the Act, there is little doubt that basic "core" services provided to schools, libraries and rural health care providers are eligible for the discount mandated by Section 254 (h). The Commission has requested comment on what additonal services carriers should be required to make available to schools and libraries in order that these institutions may have access to advanced telecommunications services. The WVCAD recommends that carriers be required to provide at least one 56 kilobit per second (kbps) dedicated line to each school in their geographic service territory at a discount. West Virginia currently has in place a program to provide direct internet access to all 900 K-12 schools in West Virginia by means of a direct link over at least 56 kbps. The over 700 schools in Bell Atlantic's service territory are to be on-line by the end of 1996. Providing a single high capacity "pipe" to each school which can then be split as required for each schools local area network is an efficient means of providing internet access for large numbers of classrooms. Experience has shown that the 56 kbps frame relay system being installed can support approximately 50 end use computers at each school site. Larger schools, especially larger high schools, will have a requirement for higher capacity lines. Nevertheless, including at least a 56 kbps direct line in the services required to be offered at a discount under Section 254(c)(3) will provide a floor for advanced access by K-12 schools nationwide.

C. Other Universal Support Mechanisms

Paragraph 114 - The Commission asks whether to continue the existing subsidy, or to eliminate or reduce the subscriber loop portion of the interstate CCL charge and permit LECs to recover these costs from end-users. The WVCAD strongly believes that regardless of the mechanism for support, or level of support for universal service chosen, there should be no new end user charges and no increase in existing end user charges, i.e., the SLC. The end result of increasing end user charges will be a decrease in costs to those with the greatest ability to pay - those who are high volume, discretionary users of the telecommunications network - and an increase in costs to those with the least ability to pay, low volume users.

No matter what name is given to customer charges, customers still see these charges as unavoidable fees which they must pay each month in order to simply have access to the system. As shown in the introduction to these comments, the cheapest residential service in West Virginia already costs $9.50 a month, and this does not include any usage of the system for local or toll calls. It is the monthly, recurring, unavoidable minimum cost of service which is a primary barrier to many persons wishing to connect to the existing telecommunications network. Simply stated, consumers accept the premise that if you use it, you pay for it; consumers resent charges that must be paid whether you use a service or not. Shifting costs currently recovered through the CCL to the SLC will make the cost of simple access unaffordable for some already on the network, and will inhibit connection to the network by the 10% in West Virginia who do not currently have phone service. Moreover, this is not the only attempt to increase end user charges. The Board and Commission should be aware that many of the same parties advocating increases in the end user charges at the federal level, are advocating the same thing on the state level.

The Act does not require or even suggest end user charges. Section 254(d)and (e) state that universal service support should be recovered from all carriers on an equitable and non-

discriminatory basis, not from end users. As stated below, it is far preferable for the Commission to recover the cost of support from carriers, and for carriers to include support for universal service as a cost of doing business recovered from all customers on the basis of gross revenues..

Paragraph 115 - The Commission proposes in the NOPR to eliminate recovery of long term support (LTS) revenues through incumbent LECs interstate CCL charges. Should the LTS system itself be eliminated or restructured to be "explicit" and "non-discriminatory?" The WVCAD believes that if the $374 million of LTS support currently being recovered through CCL charges is eliminated, an equivalent amount will simply have to be added to revenues collected from the new "explicit" USF. As discussed below, any new support mechanism should be based on gross revenues of all interstate and intrastate carriers, and should not be recovered through an increase in end-user charges. The current LTS system should be maintained during a "transition period" until a new universal support mechanism is actually functioning.

D. Administration of Support Mechanisms

Goals and Principles

Paragraph 117 - Since the Act will over time eliminate substantial differences between local and toll telecommunications services, the financial responsibility for universal service support be the responsibility of all interstate and intrastate carriers on the basis of gross revenues. The passage of the Act fundamentally changed assumptions about the sources of universal service support since all aspects of telecommunications service are now subject to competition, but the fundamental problem of low-income consumers and high cost areas remained. All telecommunications carriers, not just interstate carriers, should now contribute to universal service support.

Who Should Contribute?

Paragraph 119 - All service providers who provide switched services themselves or through an affiliate, should fall within the definition of "telecommunications carriers" and thus be required to pay universal service support. The definition of "telecommunications" in the Act seems to preclude cable operators who provide only cable services, since they are not providing services between "points specified by the user... ." However, under the Act cable operators may now provide local or toll switched telecommunications services if they so choose. The WVCAD believes that once the cable operator, or an affiliate, provides "telecommunications" services that they be defined as a "telecommunications carrier" for purposes of the Act and be required to pay universal service support based on gross revenues from all telecommunications services, including cable. As previously stated , the obligation to pay universal service support should extend to both interstate and intrastate telecommunications services.

How Should Contributions Be Assessed?

Paragraph 125 - Should contributions be based on gross revenues, and if so, should contributions be based on both interstate and intrastate revenues or interstate revenues only? The WVCAD supports universal support mechanisms based on gross revenues of all telecommunications providers. Such a mechanism is easy to understand and administer from the points of view of both the fund administrator and the contributors. Historically, support for the TRS program, which is based on a pro rata share of gross revenues, has worked well.

A gross revenue basis is explicit and non-discriminatory, and spreads responsibility for universal service support over the widest possible base. For example, the $726 million generated by the current USF amounts to 1.5% of interstate toll revenues subject to the USF. However, if all telecommunications revenues, local and toll, are used as the basis for the USF, the percentage of contribution falls to 0.4%.[10] Even if the $374 million of long term support currently recovered through the CCL is added to the USF, the percentage of total gross revenues rises to only 0.6%. Universal service support on a gross revenue basis is easily incorporated by providers as a cost of doing business. Furthermore, the WVCAD believes that support should be based on all revenues, both interstate and intrastate. Once again, this approach avoids administrative complication and provides the widest possible revenue base.

III. Conclusion

The West Virginia Consumer Advocate urges the Joint Board and the Commission to adopt universal service policies which focus on the end users of telecommunications services, the customers. In this regard the Commission should ensure that while not all consumers will be benefited by the advent of competition, none are made worse off. In designing the explicit and non-discriminatory support mechanisms mandated by the Act, the Commission should strive to replicate the success of the current support system in keeping national rates affordable, by adopting a universal service fund based on the gross revenues of all telecommunications carriers for both interstate and intrastate services. New or increased end-user charges should be avoided at all costs.

Respectfully submitted,

Terry D. Blackwood
Billy Jack Gregg
West Virginia Consumer Advocate
700 Union Building
Charleston, West Virginia 25301
(304)558-0526
(304)558-3610 FAX

[2]Bell Atlantic serves 84.3% and Citizens serves 14.1%. Bell Atlantic serves most of the urban areas in West Virginia.

[3]The rates shown are for Bell Atlantic-West Virginia, which serves 84% of subscribers, in West Virginia. Citizens TeleCom, which serves over 14% of subscribers in the state, has rates which are slightly higher in residential plans 2 and 4, and business plan 2. The remaining 2% of subscribers are served by 5 small rural phone companies.

[4]The basic cost for Plan 1 does not include any usage. The actual monthly cost for Plans 1, 2 and 3 will vary depending on the amount of usage billed at measured rates.

[5]Subscriber line charge: $3.50 per month for residential customers.

[6]The basic cost for Plan 1 does not include any usage. The actual monthly cost for Plans 1 and 2 will vary depending on the amount of usage billed at measured rates.

[7]Subscriber line charge: $6.00 per month for business customers.

[8]Based on the FCC's 87-339 Monitoring Docket (May 1994).

[9]The Universal Service Fund amounted to $749 million out of interstate toll revenues subject to the USF of $49.6 billion, based on 1994 data. CC Docket No. 90-571 (Dec. 29, 1994).