Before the
Federal Communications Commission
Washington, D.C. 20554
In the Matter of
Federal-State Joint Board on CC Docket No. 9645
Universal Service
Edward D. Young, III
Michael E. Glover
Of Counsel
April 12,1996
COMMENTS OF BELL ATLANTIC
The Bell Atlantic Telephone
Companies
Lawrence W. Katz
1320 North Court House Road
Eighth Floor
Arlington, Virginia 22201
(703) 974-4862
TABLE OF CONTENTS
PAGE
1. Introduction and Summary................................. I
II. Universal Service Issues Transcend This Proceeding....... 4
III. Universal Service Support Should Be Narrowly-Targeted and
State-Administered....................................... 5
A. The Commission Should Limit the Size of the Fund to the Level
Truly Needed to Promote Universal Service.......6
B. Administering the Fund..........................10
C. Interstate SLC and CCL Charges Are Cost Recovery
Mechanisms......................................10
D. More NTS Costs Should Be Recovered on a Non-Traffic
Sensitive Basis....................................................................11
E. Universal Service Payments Should Be Based On Presubscribed
Lines..............................................................................14
F. Existing Low-Income Mechanisms Should Be Supplemented
With Toll Restriction..............................................................14
IV. Education and Health Care Access Are Vital New Initiatives....................... 16
V. Conclusion..................................................................................................... 1 8
Comments of Bell Atlantic, CC Docket No. 80-286
(filed Oct. 10, 1995)................................ Attachment 1
Comments of Bell Atlantic, CC Docket No. 95-115
(filed Sept. 27, 1995)............................... Attachment 2
Reply Comments of Bell Atlantic, CC Docket No. 95-115
(filed Nov. I 1, 1995)............................... Attachment 3
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
To: The Joint Board
COMMENTS OF BELL ATLANTIC
I. Introduction and Summary
The universal service subsidy proposals in this proceeding, coupled with other
initiatives mandated by the Telecommunications Act of 1996 (" 1 996 Act',),2 hold the promise of
helping to ensure that high-quality telecommunications services are available to all. The policies
adopted here are just part of the broader universal service picture; a picture that will be also be
affected by the decisions reached in upcoming proceedings, including the Commission's
forthcoming investigation of access charge reform and its other proceedings implementing
Section 251 of the 1996 Act. Collectively, the Commission's decisions in these various
investigations can serve to preserve universal service throughout the United States.
I The Bell Atlantic telephone companies ("Bell Atlantic") are Bell Atlantic-Delaware,
Inc.; Bell Atlantic-Maryland, Inc.; Bell Atlantic-New Jersey, Inc.; Bell Atlantic-Pennsylvania,
Inc.; Bell Atlantic-Virginia, Inc.; Bell Atlantic-Washington, D.C., Inc.; and Bell Atlantic-West
Virginia, Inc.
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· Pub. L. No. 104-104, 1 1 0 Stat. 56 (Feb. 8, 1996).
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Of the initiatives in this proceeding, those aimed at providing state-of-the-art
telecommunications services to schools, libraries, and rural health care facilities are important
new universal service initiatives. Bringing the Information Age to classrooms and libraries will
pay long-term dividends in improving the quality of education of students and of the community
as a whole.
As an initial matter, existing universal mechanisms should be revised to help
eliminate the disincentives created by the current system for local exchange carriers to increase
efficiency and productivity. One way to accomplish this goal is by tying eligibility for federal
subsidies to the cost of providing local services within a state as a whole, rather than to the loop
costs of individual local exchange carriers ("LECs"). The average cost of all "core" local
services (i.e., those defined as eligible for subsidy) being offered within a state would be
compared to the national average costs of providing such services.
States, rather than LECS, whose average "core" service costs are significantly
above the national average would qualify for federal subsidies, to be distributed by the states
along with intrastate universal service subsidies, in a manner that state regulators find best
preserves universal service within their jurisdiction. In this way, inefficient carriers in otherwise
low-cost states will not be rewarded for their excess costs. In any event, however, the total
interstate :funds should be capped at the present level or possibly indexed appropriately to prevent
unreasonable growth. The fund is currently capped until July 1, 1996, and that cap should be
extended indefinitely.
The initial set of "core" services upon which the costs are based should consist of
single-party voice-grade telephone service, with access to emergency, operator, and
interexchange services and with a "white pages" directory listing. Additional "core" services
should be provided on a subsidized basis as needed by schools and libraries to give them access
to the National Information Infrastructure.
The federal universal service fund should be financed in the same manner as it has
been for the past eight years, with payments into the fund based on presubscribed interexchange
lines. With large local exchange carriers, cable operators, and others entering the interexchange
marketplace, and with the fund capped, the burden on existing contributors will decline.
The Commission should permit local exchange carriers to phase in increases in
the monthly subscriber line charge cap, for example by permitting annual increases in the cap of
up to twenty-five cents. In this way, more of the costs will gradually be borne by the end user,
without imposing sharp increases that could impact subscribership. Local exchange carriers
should also have the discretion to charge remaining carrier common line ("CCL") charges on a
non-usage-sensitive basis.
Unlike interstate CCL charges, Long Term Support is an implicit subsidy,
embedded in non-pooling LECs' CCL charges, that should either be eliminated immediately or,
if retained temporarily, should be made explicit and directly billed to interexchange carriers, as
required by statute. It should then be phased out over a short, fixed period.
Existing low-income programs, such as Lifeline Assistance and Link-up America,
should be retained to help low-income subscribers acquire and retain their telephone service.
LECs should publicize not just these services but other low-cost network offerings that low-
income subscribers might find attractive. To help low-income customers manage their toll
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services to avoid large unexpected bills, states should adopt voluntary toll restriction services for
LECs within their jurisdiction.
Adoption of these proposals will meet the intent of Congress to ensure universal
access to needed telecommunications services.
II. Universal Service Issues Transcend This Proceeding
The universal service issues being considered in this rulemaking, while important,
are just a segment of the overall picture that the Commission must address in the context of other
proceedings that it will soon initiate. For example, access charges, beyond the CCL charges
dealt with here, help to defray the LECs' joint and common costs of providing ubiquitous local
telephone service. Even if the incremental costs of providing local telephony are defrayed by
subscriber charges, which is often not the case, without sufficient revenue to make up this deficit,
plus cover the joint and common costs of operating the network, the LECs will be unable to
fulfill their traditional role of providers of last resort.
Accordingly, in its forthcoming proceeding on access reform, as well as in
interconnection proceedings initiated pursuant to Section 251 of the Act, the Commission must
be aware of the current role of incumbent LECs in providing ubiquitous local telephone service
at rates that often are set for public policy reasons at artificially low levels. Local competition, at
least for some years, will be concentrated in the lowest-cost, high-density areas, leaving the
incumbent LECs as the primary local service providers in other areas, where they incur
significantly higher costs to provide local service. Historically, revenues from access charges
have made significant contributions to covering the common costs of constructing and operating
the LECs' ubiquitous networks and have allowed them to serve these high-cost areas at
artificially low rates. If the LECs are deprived of the revenues needed to finance the overall
costs of providing the ubiquitous network -- as a result, for example, of expected proposals by
long distance carriers to set access charges at incremental cost -- universal service objectives
will be jeopardized.
III. Universal Service Support Should Be Narrowly-Targeted and State-Administered. 3
Existing universal service subsidy mechanisms, both state and federal, have been
effective in keeping rates at just, reasonable, and affordable levels. Overall subscribership is
nearly at an all-time high, and many of those who do not have residential telephone service have
4
chosen not to subscribe for reasons other than the price of local service. Therefore, there is not a
national problem that requires new national programs to remedy.5
That is not to suggest that the Commission should here eliminate its various
existing subsidy programs. There are areas of unusually high cost in which telephone rates are
subsidized to keep them reasonably comparable to those in other areas. There are low-income
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3 As the Commission requested, Bell Atlantic is incorporating by reference, and
attaching, its 1995 comments in CC Docket No. 80-286. See Notice of Proposed Rulemaking
and Order Establishing Joint Board, FCC 96-93,19 39 (rel. Mar. 8, 1996) ("Notice").
4 See Dr. Milton Mueller and Dr. Jorge Reina Schement, Six Myths of Telephone
Penetration: Universal Service from the Bottom Up ("Mueller and Schement") at 9-1 1.
5 See Bell Atlantic's Comments in the Commission's telephone subscribership
proceeding, CC Docket No. 95-115 (filed Sept. 27, 1995). Those Comments are appended and
incorporated by reference.
----------------------------------------------------------------------
consumers who would be off the network without targeted programs such as Lifeline Assistance
and Link-up America. 6
On the other hand, without revision to the current system, existing anomalies, that
have no positive impact on universal service, but that produce inefficient and sometimes bizarre
results, will continue. For example, there is no justification for sending subsidies to telephone
companies to reduce their rates well below their costs to levels that are far under the national
average. In addition, today's rules provide little incentive for rate of return regulated LECs to
lower their operating costs. Instead, if a LEC's costs exceed II 5% of the national average in a
study area, regardless of whether this is due to sheer inefficiency or legitimately high-cost
characteristics of its service area, that LEC is currently eligible to receive universal service funds.
Bell Atlantic's proposal is designed to retain universal service funding where it is
really needed. It provides incentives for efficiency and shifts the administration of the federal
fund to those entities best able to ascertain the need within recipient states -- the state public
service commissions.
A. The Commission Should Limit the Size of the Fund to the Level Truly Needed to
Promote Universal Service.
Defining the "Core" Services
The 1996 Act requires the Commission to base its determination of which
services should receive universal service subsidies on four criteria, i.e., whether the services are
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6 Bell Atlantic proposes below a toll restriction service that will help these people keep
their bills down and thereby enable them to retain their telephone service.
----------------------------------------------------------------------
(1) essential to education, public health, or public safety; (2) subscribed to voluntarily by a
majority of residential customers; (3) deployed in public telecommunications carriers' networks,
7
and (4) consistent with the public interest. Although a service need not necessarily meet all four
tests for inclusion in the list of "core" universal services, the Joint Board and Commission
evaluation of all potential "core" services must consider all four. If a service does not meet all
the criteria, the evaluation must show why the public's interest in including the service on the list
8
is so overwhelming that not all the criteria need to be met.
Bell Atlantic agrees with the Commission's tentative assessments that "core"
services supported by the universal subsidy funds should consist of single-line dial tone voice-
grade service, with access to operator services and to emergency services provided in the
community. Bell Atlantic also supports the inclusion of a "white pages" directory listing. 10 The
emergency services themselves should not be financed through the universal service funding
mechanism, because states and communities have often established separate methods of
financing for such services. Although a directory listing should be included, the decision of
whether there should be a single white pages directory covering all local carriers or multiple
directories in a community served by multiple LECs should be left to the states. Likewise,
whether touch-tone service should be defined as a "core" service should be left to the states.
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7 Section 254(c)(1).
8 When re-evaluating the list periodically, as required under Section 254(c)(2), the Joint
Board and Commission should evaluate both whether new services should be added to the "core"
list and whether any initial "core" services no longer meet the criteria and should be deleted.
· Notice at ¦¦ 15-22.
10 As far as Bell Atlantic is aware, all LECs afford access to interexchange services as
part of the basic dial tone service. Therefore, no additional subsidy should be needed.
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LECs not currently subject to equal access obligations should be required to
upgrade their equipment to provide for equal access only upon bonafide request from a second
interexchange carrier ("IXC") to serve the customers in the LEC's service area. The LEC that
converts to equal access should recover the costs of such conversion from the IXCs that benefit
from equal access, as provided in the Commission's rules.11 This recovery mechanism has
successfully financed equal access conversions for all the large LECs and many small ones, and
there is no reason to change it for the remaining LECs that have not yet converted to equal
access.
Sizing the Fund
A LEC may recover from the existing Universal Service Fund if the costs of
12 13
providing dial tone service within that LEC's study area exceed II5% of the national average.
This mechanism provides LECs with a disincentive to contain costs, because many of their
excess costs will be subsidized by contributing carriers and their customers. 14 The Joint Board
and the Commission should modify the existing rules to help eliminate this anomaly. Those
rules should limit universal service fund subsidies to those situations in which the average cost of
providing the "core" services by all LECs in a state exceeds the national average. Such an
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11 47 C.F.R. ¤ 69.107.
12 A study area is generally all exchanges within a state served by the LEC and its
affiliates. See Notice at n.94.
13 See 47 C.F.R. ¤ 3 6.63 1.
14 By the same token, LECs that are rate of return regulated have little incentive to
increase productivity.
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arrangement will send subsidy funds to those states that experience unusually high costs, not
directly to individual LECS.
This proposal will focus support on geographic areas that are more costly to serve,
because of such factors as low population density and difficult terrain, instead of on companies
that are high-cost, sometimes as a result of inefficiency. In addition, the existing rules have
encouraged the sale of high-cost exchanges by large LECs whose overall study area is
sufficiently low-cost that they do not qualify for universal service funds. The smaller LECs that
acquire these exchanges have higher average operating per-loop costs within their study area. As
a result, these exchanges have become eligible for universal service subsidies, even though their
operating costs have not changed.
Determining universal service eligibility on a state, rather than a company, basis
is also more consistent with the 1996 Act. This is because the new statute requires the Joint
Board and the Commission to provide universal service funding to "consumers ... in rural, insular,
and high cost areas,"15 not to companies.
In addition, the fund should continue to be capped at current levels. The current
indexed cap, currently due to expire on July 1, 1996, should be retained permanently. 16
Although Bell Atlantic's proposal to calculate subsidy payments on a state, rather than study area
basis, will avoid some of the existing incentives to increase per-line costs, a cap to the fund will
also help reduce incentives to over-invest, because the overall subsidy levels will not increase.
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15Section 254(b)(3) (emphasis added).
16See Notice at ¦ 40.
----------------------------------------------------------------------
This proposal will give federal funds to the states to be combined with state-generated subsidies
to ensure that subscribers in truly high-cost areas receive service at reasonable rates.
B. Administering the Fund
State commissions, not the FCC, are in the best position to determine which areas
within their jurisdiction have the most need for subsidies in order to provide affordable local
service. Many states already have procedures in place to implement intrastate universal service
subsidy programs. It would be unnecessarily duplicative and costly for the Commission to create
a separate distribution mechanism when states already have such a process in place. Therefore,
the interstate universal service funds earmarked for those states whose "core" service costs
significantly exceed of the national average" should flow to those states. The funds should then
be distributed to eligible LECs that provide local service using their own loop facilities within
those states in the manner that the local commission believes is needed to promote universal
provision of the "core" services.
C. Interstate SLC and CCL Charges Are Cost Recovery Mechanisms.
The Commission asks whether changes should be made in the current subscriber
line charge ("SLC") 18 and carrier common line ("CCL") charge mechanisms. 19
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17 This threshold should be no greater that 115 % of the national average.
18Also referred to as the End User Common Line charge.
19 Notice at ¦113.
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Contrary to the Commission's assumption, 20 interstate CCL charges are not implicit subsidies,
and, therefore, need not be made explicit under the 1996 Act. Instead, federal CCL charges
recover the portion of interstate non-traffic sensitive ("NTS") loop costs that are not recovered
through SLC charges. 21 The interstate NTS cost are real, defined costs based upon the
Commission's determination that a certain portion of the total NTS costs should be borne by the
interstate jurisdiction. Although the interstate costs allocated to a particular common line may
not always exactly match the relative interstate/intrastate use of that facility, that fact does not
make the interstate CCL charge a subsidy. The rate paid by a subscriber to any generally-tariffed
service does not cover the exact cost of the particular facility serving that customer. Rates for
many services, including CCL, are of necessity based upon averages, but that fact does not mean
that the rates for all services contain implicit subsidies. Therefore, with the exception of Long
Term Support payments, addressed below, retaining the interstate CCL charge does not violate
the statutory ban on implicit subsidies. 22
D. More NTS Costs Should Be Recovered on a Non-Traffic Sensitive Basis.
Whether the Commission addresses the NTS cost recovery issue here or in the
forthcoming access restructure proceeding, it should afford LECs the right to increase the SLC
----------------------------------------------------------------------
20 Id.
21 47 C.F.R. ¤ 69.105(b).
22 See 47 U.S.C. ¤ 254(e).
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cap by a modest amount each year, while reducing the interstate CCL accordingly. 23 For
example, the Commission could allow LECs to increase the monthly SLC cap on a phased basis
by up to twenty-five cents each year. It should also allow the SLC cap to be automatically
indexed for inflation. At the same time, the Commission should afford LECs the flexibility to
recover the residual CCL charges in a manner appropriate to their competitive position. For
example, the first step would be to deaverage CCL minute of use charges by density zone. 24
Another step in this process would be to permit LECs to recover the remaining CCL charges on a
flat-rated or per-line basis. In any event, interexchange carriers should be required to flow
through any CCL reductions to their MTS customers dollar-for-dollar.
Allowing small annual SLC increases would be a recognition that the bulk of the
non-traffic sensitive costs should ultimately be charged on a non-traffic sensitive basis. The
proposed gradual increases in the SLC cap will permit the Commission to avoid sharp rate
increases as it moves toward non-traffic sensitive recovery. Such a moderate approach also
recognizes that interexchange carriers benefit from the use of the common line to originate and
terminate their calls by charging them for a portion of the NTS costs.
Based upon the lack of adverse impact on subscribership of the initial imposition
of the SLC and of subsequent increases, it is unlikely that a minimal, phased increase in the cap
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23 Affording LECs additional pricing flexibility is consistent with Chairman Hundt's
November 2, 1995 speech before the United States Telephone Association. To accomplish this
goal, Section 69.104(e) of the Commission's Rules should be amended to give LECs the
flexibility to price to the SLC cap.
24 To facilitate administration, the Commission should allow LECs to use the density
zones established for expanded interconnection in developing deaveraged CCL rates. See
Expanded Interconnection with Local Telephone Company Facilities, Report and Order and
Notice of proposed Rulemaking, 7 FCC Rcd 7369, ¦¦ 172-86 (1992).
----------------------------------------------------------------------
will affect subscribership. 25 For low-income subscribers, Lifeline Assistance is available to
defray the higher SLC charges, and other subscribers should be able to absorb the modest SLC
increases, especially when the reduced CCL charges are reflected in lower toll rates.
Long Term Support ("LTS") is, however, an implicit subsidy and should be
eliminated, as the Commission proposes. 26 LTS is a non-cost-based universal service subsidy
payment, embedded in the CCL charge, which is collected from LECs that do not participate in
the National Exchange Carrier Association, Inc. ("NECA") common line pool and given to those
LECs that are still in the pool.27 This mechanism should be eliminated. There is no indication
that it is needed to maintain affordable rates by pool companies, 28 and LTS is an implicit subsidy
that the 1996 Act requires to be removed. 29 In any event, the LTS subsidy has outlived its
usefulness and should be eliminated from CCL charges immediately, as the Commission
proposes. Any explicit LTS subsidies that the Commission retains should be frozen at current
levels and phased out over a short, fixed period, such as four years.
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25 See Notice at ¦ 114.
26 Id. at ¦ 115.
27 See 47 C.F.R. ¤¤ 69.603(e), 69.612.
28 As is the case with the universal service :fund, the availability of LTS has encouraged
some non-pool companies to sell existing exchanges to pool companies. Some of these
exchanges have then become eligible for LTS subsidy, even though the costs of providing
service have not changed. For example, NECA recently proposed, then had to withdraw, an LTS
increase of nearly $1 0 million for this very reason. Transmittal No. 697 (filed Jan. 19,
1996).
29 47 U.S.C. ¤ 254 (e).
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E. Universal Service Payments Should Be Based On Presubscribed Lines.
There is no reason to change the existing mechanism for financing interstate
universal service. Currently, interexchange carriers with at least .05% of total presubscribed
30
lines contribute to the fund. With the changes adopted in the 1996 Act, the Bell operating
companies ("BOCs"), GTE, cable companies, electric utilities, and many other entities are likely
to enter the long distance marketplace very soon. By the time final rules are adopted in this
proceeding, it is likely that some, if not all, BOCs will have in-region relief. As a result, many
companies in addition to the incumbent interexchange carriers are likely soon to have large
numbers of presubscribed lines and will each contribute significant amounts into the universal
service fund. The burden of funding universal service will be spread over a larger number of
contributors, and the incumbent IXCs' share of the total fund payment will decline.
F. Existing Low-Income Mechanisms Should Be Supplemented With Toll Restriction.
As Bell Atlantic demonstrated in its comments in the Commission's
Subscribership proceeding, CC Docket No. 95-115, existing low-income assistance programs,
both federal and state, have proved effective in keeping subscribership levels high. Some
proposals in that proceeding, such as prohibiting denial of local service for non-payment of toll
bills, when implemented at the state level, have not had an appreciable impact on
subscribership. 31 Recent subscribership figures released by the Commission confirm this.
----------------------------------------------------------------------
30 47 C.F.R. ¤¤ 69.5(d), 69.116.
31 Bell Atlantic Comments in CC Docket No. 95-115 at 8-11.
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Subscribership penetration in Pennsylvania and Delaware, the two Bell Atlantic jurisdictions
which prohibit denial of local service for nonpayment of other charges, showed little change in
subscribership between 1994 and 1995. By contrast, subscribership levels in Maryland, Virginia
and West Virginia, which allow such denial, are at all-time highs and have shown recent
increases. 32
The Commission has suggested that the bulk of customers' bill payment
difficulties may arise because of an inability to regulate the amount of toll calls they place. 33 In
order to provide customers with the ability to restrict long distance calling, each state should
adopt a mechanism to restrict toll calling, based upon the state commission's determination of
the best plan to meet its constituents' particular needs. Such plans should be available to all
customers, but rates for customers that do not meet low-income guidelines should not be
subsidized.
Such plans should be voluntary but should allow currently-disconnected
customers to reconnect if they retain the toll restriction service and maintain a mutually-agreed-
to payment plan for past-due bills. The plans should permit customers to prevent toll and pay-
per-call calls to be placed from their telephones. They should also provide for waiver of non-
recurring charges for low-income customers to ensure that they have easy access to the service.
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32 Industry Analysis Division, Common Carrier Bureau, Telephone Subscribership in the
United States at Table 3 (Feb. 1996).
33 Amendment of the Commission's Rules and Policies to Increase Subscribership and
Usage of the Public Switched Network, Notice ofProposed Rulemaking, IO FCC Rcd 13003,
¦ 10 (1995). See, also Mueller and Schement at 9.
----------------------------------------------------------------------
This model toll restriction program will give customers control over their service
and afford them the tools to avoid incurring excessive long distance charges, while retaining
sufficient leverage to give telephone companies some chance of collecting overdue bills. The
Commission should encourage states to adopt programs that include these features, but it should
permit state regulators to determine the actual rates, terms, and conditions that are needed within
their jurisdiction. The continuing Joint Board universal service oversight process can be used to
determine if additional toll restriction features are needed and to make the appropriate
recommendations to the states.
In addition to assistance in preventing excessive toll bills, low-income consumers
may not always be aware of lower-priced local service offerings that are available to them. In
addition to subsidized programs aimed at low-income subscribers, such as Link-up and Lifeline,
many LECs also offer generally-available local services that include only a small number of (or
no) local calls at reduced monthly charges. Bell Atlantic is committed to publicizing the
availability of such lower-priced services to low-income and other consumers. 34
IV. Education and Health Care Access Are Vital New Initiatives.
The proposals in this proceeding 35 dealing with rural, insular, and high-cost areas,
and with low-income subscribers, are designed to refine on-going, viable Commission and state
----------------------------------------------------------------------
34 One way of publicizing these programs could be through the Internet. As a result of
providing community Internet access in schools and libraries, the public will be afforded easy
access to this information.
35 Notice at 11 14.
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universal service programs. The legislation has, however, also required the Commission to
initiate new, vitally-important programs to provide state-of-the-art telecommunications services
to the educational and rural health-care community. Bringing the Information Superhighway to
educational institutions -- schools and libraries -- will inject new vigor into an educational
system that has come under recent fire. As the President's NII Advisory Council has recently
found, "[i]n some ways, schools are the most important component of the Information
Superhighway. Their success in implementing and instructing students on the use of the
Information Age technologies may determine how well children assimilate into the working
world. ,36
Bell Atlantic participated in the development of the KickStart Initiative and fully
supports its proposals. The study provides a set of useful models that can help shape a successful
universal service policy to connect all schools to the NII. Using the KickStart Initiative as a
guide, Bell Atlantic is developing a cooperative federal-state-local proposal that will help ensure
that each school in the United States has the tools needed to enhance the learning experiences of
students through access to Information Age services. This proposal is being designed to provide
schools with the telecommunications services they need to incorporate a solid Information Age
infrastructure into their curriculum over the next few years.
----------------------------------------------------------------------
36 United States Advisory Council on the National Information Infrastructure, KickStart
Initiative (1996) at 33.
----------------------------------------------------------------------
V. Conclusion
Bell Atlantic urges the Commission to adopt the proposals outlined above.
Edward D. Young, III
Michael E. Glover
Of Counsel
April 12, 1996
Respectfully Submitted,
The Bell Atlantic Telephone
Companies
By their Attorney
Lawrence W.
1320 North Court House Road
Eighth Floor
Arlington, Virginia 22201
(703) 9744862
Before the
FEDERAL COMMUNICATIONS COMMISSION
Washington, D.C. 20554
In the Matter of
Amendment of Part 36 of The
Commission's Rules and
Establishment of a Joint Board
CC Docket No. 80-286
COMMENTS OF BELL ATLANTIC
The Bell Atlantic Telephone
Companies
By their Attorney
Edward D. Young. M Lawrence W. Katz
Michael E. Glover
Of Counsel 1320 North Court House Road
Eighth Floor
on, V' 22201
(703) 9744862
October 10, 1995
TABLE OF CONTENTS
1. Introduction and Summary.............................................................1
II. Dial Equipment Minutes Weighting Rules............. ........... .. ....... 4
III. A Use of High-Cost Credits...5
III. B Administrative Options.....10
IV. A Least-Cost Bidding.........12
IV. B Other Long-Term Issues....12
V. Conclusion.................13
Before the
FEDERAL COMMUNICATIONS COMMISSION
Washington. D.C. 20554
In the Matter of
,Amendment of Part 36 of The
Commission's Rules and
Establishment of a Joint Board
CC Docket No. 80-286
COMMENTS OF BELL ATLANTIC'
Introduction and S
Before addressing revisions to the mechanism of providing subsidies to high-cost
areas, it is incumbent on the Commission to develop a record and make findings "on how best to
ensure that affordable telephone service is available to the general public in high-cost areas in a
changing telecommunications environment. The present record, which is devoid of information
on the effect of local competition and data concerning affordability of telephone service, is
insufficient for that purpose.
In fact, the initial inquiry2 and the present rulemaking and second inquiry3 are
based on an unsubstantiated position that continued national high-cost support at
----------------------------------------------------------------------
The Bell Atlantic telephone companies ("Bell Atlantic") are Bell Atlantic-Delaware, Inc.; Bell
Atlantic-Maryland, Inc.; Bell Atlantic-New Jersey, Inc. Bell Atlantic-Pennsylvania, Inc.; Bell
Atlantic-Virginia, Inc.; Bell Atlantic-Washington, D.C., Inc.; and Bell Atlantic-West Virginia, Inc.
' Notice of Inquiry, 9 FCC Rcd 7404 (1994).
'Notice of Proposed Rulemaking and Notice of lnquiry ,FCC95-282(rel. July l3,1995)
("Notice").
----------------------------------------------------------------------
approximately the current level is needed to preserve universal service. Although there is little
dispute that service costs vary among states and among areas within states, there is no evidence as
to what level of national support is required in hip-h-cost areas to prevent rate increases that will
undermine universal service. Likewise, there is no record concerning the potential effect of
growing local competition on universal service. In Bell Atlantic, most of the subsidies from low-
cost to high-cost areas derive from intrastate rate averaging and from the explicit loading of
contribution on business services. The pressures of local competition bring into serious question
the continued viability of these socially-conceived rate designs. The rapid expansion of local
competition could exacerbate the rate disparities between low- and high-cost areas and could have
a significant impact on subscribership in high-cost areas.
Accordingly, before attempting to revise its Universal Service Fund rules, the
Commission should assess the effect of existing rate levels on universal service and the potential
increase in those rates caused by the rapid expansion of local competition. These issues can best
be addressed in a broader investigation aimed at access reform and universal service, rather than
in the instant narrow proceeding.
Assuming that the Commission still chooses to move forward at this time,
however, it should adopt the mechanisms to fulfill not only the four principles stated in the
Notice,4 but it should add a fifth basic principle, which is a corollary of the fourth: any assistance
program should be competitively-neutral so that incumbent local exchange carriers ("LECs"),
----------------------------------------------------------------------
4 Those principles are (1) proper targeting of assistance, (2) promotion of efficient investment and
operation, (3) assistance should be technologically neutral and (4) mechanisms should not impose
barriers to local competitive entry. Id. at ¦ 6.
----------------------------------------------------------------------
whatever their size, are not disadvantaged vis-a-vis new entrants. Applying these principles to the
issues in this proceeding, if a high-cost credit program is instituted, such a program should be
administered in a nondiscriminatory manner, so that, if one LEC serving an area is ineligible to
receive credits, competing providers will likewise be ineligible, to avoid skewing the competitive
marketplace.
Subsidies should not be available to construct and operate redundant networks in
high-cost areas. If a new entrant cannot serve a community on an unsubsidized basis, there is no
justification for ratepayers' funds being used to finance contrived competitive entry that would be
uneconomic but for the subsidy. It however, the Commission were to permit the use of universal
service funds to finance competitive expansion in high-cost areas, it should ensure that any
recipient of these funds undertakes the full panoply of service obligations by constructing a
ubiquitous system capable of providing telephone service to all residential and single-be business
customers in the high-cost area. This requirement will help to prevent a new entrant from "cream-
skimming" a high-cost area by serving only lower-cost individual subscribers (e.g., serving the
bank and grocery store on Main Street while ignoring the true high cost subscribers). In addition,
in order to ensure that subsidies are properly applied to local rates and to allow the Commission
and state commissions to track the costs of all competing providers, new entrants should be
required to account for and allocate costs on a basis equivalent to the Commission's Part 32
accounting requirements and Part 36 Separations Rules that are applicable to the incumbants.
Applying the underlying policies to the items addressed in the Notice, the
Commission should allow 'weighting" of dial equipment minutes ("DEM weighting") only insofar
as LECs are able to demonstrate that the particular switches they use have a significantly higher
per-line cost than the national average. Any DEM weighting program should also contain a
sunset provision to encourage LECs to invest in more efficient switching equipment.
Finally, the Commission should not use Census Block Groups to determine high-
cost eligibility. Instead, costs should be determined on a state-wide area basis, and any federal
assistance should be distributed to those states whose costs are substantially above the national
average. Once this allotment is made on a state-wide basis, distribution and adminismfion of the
fund should be left to the states, based upon overall federal guidelines. States should have the
right to use any reasonable basis for this dispersal as appears appropriate for that state. Besides
better allowing for local needs than a micro-managed federal program allowing the states to
distribute the funds will avoid duplication, because many states already administer their own
universal service programs.5
II. Dial Equipment Minutes Weighting Rules
The Commission acknowledges that the assistance afforded by DEM weighting is
based on the untested assumption that the switches small LECs use have higher per-line costs than
switches used by larger LECs.6 Unless that assumption can be documented, the Commission
should not assume that small LECs have higher per-line costs than large LECs and automatically
----------------------------------------------------------------------
5 As the Commission requests, the remainder of these Comments is organized in a manner that
parallels the headings in the Notice. Id. at ¦ 8.
Id. at ¦ 9.
----------------------------------------------------------------------
allow DEM weighting. Any support that is retained should be based upon the extent of actual use
of high-unit cost switches.7 In addition, any DEM weighting support should include a sunset
provision as an incentive for LECs with high-cost switches to upgrade to more efficient
equipment.
If the DEM weighting adjustment is retained, even temporarily, the implementation
mechanism should be changed. Currently, the DEM weighting subsidy is hidden in the LEC's
interstate switched access charge rates by allocating a higher percentage of the LEC's switch
costs to the interstate jurisdiction. In a competitive environment, all subsidies should be explicit
so that the amount can be easily quantified and adjusted as public policy requires. Therefore, the
amount of any needed high-cost switch support should be provided by a direct billing to
interexchange carriers of separately-identified DEM support rather than through the LEC's access
charges.
III. A Use of High-Cost Credits
The Commission's proposal to distribute assistance in high-cost areas through use
of high-cost credits is designed to help ensure that subsidies to customers in those areas are
explicit and quantifiable.8 Its companion proposal to examine local service costs on a Census
7 The Commission suggests a high-cost test based upon the average switching cost per line in a
study area. Id. at ¦ 13. Bell Atlantic suggests, as an alternative, that the Commission determine
the average switching cost per fine for certain types of high unit-cost switches, then permit DEM
weighting only for the number of lines that actually use those switch types. This will target DEM
support to the actual lines for which switching costs are substantially above the national average.
----------------------------------------------------------------------
8 Id. at ¦¦ 19-22.
----------------------------------------------------------------------
Block Group basis purportedly would target relief to high-cost areas far more precisely than the
existing study area-wide calculation of costs.9 Both proposals, however, have the perverse effect
of potentially increasing the size of the Universal Service Fund ("USF"). Additionally, the Census
Block Group proposal could be expensive and complex to administer. Revisions should be made
to both.
In the Notice, the Commission asks whether to extend high-cost credits to new
entrants in order to encourage competitors to provide local service in high-cost areas and to give
subscribers a choice of local carriers.10 Use of such credits in a competitive environment could
dramatically increase the size of the fund needed to subsidize high-cost services, because high-
cost credits would become available to finance investment in inefficient duplicate infrastructures.
This economically unsound investment is unlikely in the absence of subsidies. If several carriers
construct redundant networks and each serves only a portion of the subscribers in an area, the
cost to serve each subscriber would increase drastically, and far higher subsidies would be needed
to retain the same subscriber rates. A possible "cure" to that problem, capping the fund, might
not yield sufficient revenue to keep rates close to their existing levels and could result in
substantial local rate increases. Contrived "competition" which causes either the subsidy fund, or
local rates, to rise sharply is not a result that serves the public interest.
If however, the Commission chooses to encourage uneconomic investment by
making high-cost credits available to fund construction regardless of whether an unsubsidized
----------------------------------------------------------------------
9 Id. at ¦ 23.
10 Id. at ¦¦ 20-21.
----------------------------------------------------------------------
marketplace could support additional service providers, it should ensure that all such carriers
operate under the same set of rules. The Commission proposes. however, only that all carriers be
required to offer at least one generally-available residential service in a geographical area.
Instead, it should require any new entrant receiving high cost funds to undertake the same service
obligations as the incumbent with which it seeks to compete. This generally means that the new
entrant will need to construct its own facilities-based system that is capable of providing
ubiquitous single-party residential and single-line business dial tone services, with access to
directory assistance and 911 (where available) to all residences and single-line businesses in the
target area. This requirement will also help to prevent competing providers from "cream-
skimming" the high-cost areas by serving only relatively lower-cost subscribers in the high-cost
areas, then collecting high-cost credits based upon the average loop cost.
In addition, the Commission and state commissions should have the ability to
monitor carriers receiving high-cost credits to ensure that the credits are being used to lower local
rates. For this to happen, all carriers receiving high-cost credits should be required to keep
similar accounts. This means that new entrants must, to the same extent as the incumbent
provider, keep accounts on a basis equivalent to the Part 32 Uniform System of Accounts and
separate their interstate and intrastate costs in a manner similar to that specified in the Part 36
Separations Rules. Similarly, if the costs of all carriers serving an area are taken into account in
determining higb-cost areas, all such carriers must develop their costs the same way.
----------------------------------------------------------------------
Id. at ¦ 26.
----------------------------------------------------------------------
The Commission's proposal to aggregate all lines served by a LEC in all study
areas and deny refief if the average per-subscriber assistance is less than $l.00,12 is
anticompetitive and unwarranted. Although that proposal would reduce the size of the subsidy
fund, it could result in subsidies to one set of competitors -- new entrants that do not choose to
serve large low-cost areas -- while placing unsubsidized incumbents at a competitive
disadvantage.13 Just because an incumbent is "financially sound" does not justify handicapping
that LEC's ability to compete, as the Commission appears to assume.14 Nor does it follow that
high-cost areas served by an incumbent LEC do not need assistance, or that competitive pressures
will allow the LEC to subsidize rates in those areas with revenues from low-cost areas.
The Commission should not adopt its proposal to use Census Block Groups,
which typically serve only 400 households,15 to identify high-cost areas and the cost of serving
those areas. As the Commission acknowledges, use of such a small measurement area could
substantially increase the total subsidy requirement and with it the size of the USF.16 Census
Block Groups are rarely conterminous with a central office serving area. It is therefore likely to
be difficult and expensive to ascertain the cost of service in each Census Block Group. Also,
----------------------------------------------------------------------
12 Id. at ¦ 45.
13 When assistance in the one study area served by Bell Atlantic which currently receives USF
funds - West Virginia - is averaged among the more than 739,000 access lines Bell Atlantic
serves in that state, the amount of per-line assistance, while substantial in total dollars, would be
less than $1.00 per month.
14 Notice at ¦ 45.
15 Id. at ¦ 23.
16 Id. at ¦ 75.
----------------------------------------------------------------------
because of the large number of Census Block Groups in the United States, the entire system could
become overly cumbersome and unwieldy to administer.17 The area covered by a Census Block
Group also does not necessarily correlate to that served by an individual central office or even by
a single LEC. As a result, costs will sometimes need to be calculated on an even more granular
basis than Census Block Groups, thereby complicating the process still further.
The complexity of attempting to administer a national Census Block Group-based
USF program is illustrated by a recent ex parte filing in this docket.18 This model attempts to
calculate the "proxy" costs of providing service in each Census Block Group, by weighing a large
number of separate factors, each of which has many different variables. Some of the factors, such
as population density, switch size and type, and distribution cable capacity, will vary widely over
time. This will require the model to be updated frequently and will result in frequent changes in
the relative costs of various Census Block Groups. In addition, the model assumes that
communications technology is static, because it appears to have no provision for the rapid
technological changes that the telecommunications industry is now undergoing. These changes
could have a major effect on the costs of providing service in many areas. The Commission
should not attempt to administer such a complex process but should leave to each state the
determination of whether to use this model or some other approach in developing costs.
----------------------------------------------------------------------
17 The Commission cites figures showing that there are 220,506 Census Block Groups
nationwide. Id. at n.32.
18 Benchmark Cost Model, submitted jointly by MCI Telecommunications Corp., NYNEX Corp.,
Sprint Corp. and US WEST Inc. (Sept. 12, 1995) ("Cost Model Ex Parte").
----------------------------------------------------------------------
Instead, costs should be determined on a overall state basis by aggregating the
costs of all local common carriers serving that state. States whose average access line costs
substantially exceed the national average may receive payments from the USF based upon the
aggregate high-cost credits applicable to the access lines in that state. State commissions should
then determine the basis for distribution within their jurisdiction.
The Commission asks whether to superimpose a needs test on top of high-costs in
identifying customers that are eligible to receive assistance from the USF.19 Although targeting
high-cost assistance to low-income subscribers is laudable in concept, the additional cost and
complexity of administering the USF at the national level through a dual qualification process -
cost of providing service and income - could outweigh the benefits. Instead, the Commission
should confine any USF assistance to high cost states, then allow the states to determine whether
or not to overlay a means test onto its distribution mechanism.20
III.B Administrative Options
The Commission proposes three options, each with sub-parts, for quantifying the
USF fund and for administering its disbursement. Bell Atlantic urges the Commission to adopt a
portion of its fim option by ascertaining costs based upon reports by all exchange carriers, both
----------------------------------------------------------------------
19 Notice at ¦¦ 30-31.
20 The Commission is addressing low-income subscriber penetration issues in a separate
proceeding. See Amendment of the Commission's Rules and Policies to Increase
Subscribership and Usage of the Public Switched Network, Notice of Proposed Rulemaking,
CC Docket No. 95-115, FCC No. 95-281 (rel. July 20, 1995).
----------------------------------------------------------------------
incumbent carriers and new entrants. The second option, use of proxy factors, contains so many
variables that either its calculation and administration will be extremely cumbersome, or it will
produce inaccurate results, or both. The Commission proposes four sets of proxy factors --
subscriber density, distance from the nearest wire center, terrain, and climate, and asks whether
others should be included.21 Each of these factors has a large number of variables, and the
interrelationships among them provide even greater administrative complexity. These concerns
are amply illustrated by the size and complexity of the Cost Model Ex Parte, use of which will
unnecessarily complicate the USF process and sharply increase the administrative costs.
On the other hand, the Commission has since its inception routinely relied upon
carrier-reported cost data for a myriad of regulatory purposes. There is no reason to expect that
the data reported for USF would be any less reliable than the data used to determine tariff rates,
price cap sharing, rates of return of non-price cap companies, and for the many other uses the
Commission makes of the vast quantities of data the LECs are required to report, so long as all
carriers are required to report costs in the same manner.
Once the Commission calculates the USF amount to be distributed to each eligible
state, the distribution of the USF amounts should be administered by the states, as proposed in
Option 3, based upon Commission-prescribed guidelines. Many states already administer
intrastate universal service funds and it would be wasteful to duplicate the distribution
mechanism.
----------------------------------------------------------------------
21 Notice at ¦¦ 64-69.
----------------------------------------------------------------------
IV. A Least-Cost Bidding
In the Notice of Inquiry phase of this proceeding, the Commission asks for
comments on use of competitive bidding to select the entity that will serve as the "essential
carrier" or "carrier of last resort" in a Census Block Group. The issues of what carrier or
carriers should provide local exchange service in a given geographical area, how that carrier or
carriers should be selected, and what service obligations they have are left exclusively to the states
under Section 2(b) of the Communications Act.23 Currently, some thirty-five states are
conducting local competition proceedings, and they should be permitted to resolve those
proceedings based upon local conditions and needs, with which they are most familiar.
Accordingly, the Commission should not adopt rules or policies relating to local "essential
carriers."
IV.B Other Long-Term Issues
The Commission asks whether it should address other long-range universal service
questions at this time.24 It points out that pending legislation would require a comprehensive
review of universal service issues in conjunction with the states.25 Long-term universal service
----------------------------------------------------------------------
22 Id. at.¦¦ 83-87.
23 47 U.S.C. ¤ 152(b).
24 Notice at ¦ 88.
25 Id.
----------------------------------------------------------------------
issues are closely interrelated to access charge restructuring and should, therefore, be addressed in
the context of a comprehensive access charge proceeding. As Bell Atlantic pointed out in its
comments on the initial Notice of Inquiry, there are several pending petitions asking for such a
comprehensive review, and universal service should reasonably be addressed in a rulemaking
initiated in response to those petitions.26
V. Conclusion
The proposals that Bell Atlantic sets out above will keep the USF at reasonable levels,
tuget assistance to high-cost study areas, allow competition, and help preserve a level playing
field.
Respectfully Submitted,
The Bell Atlantic Telephone
Companies
By their Attomey
Edward D. Young, III
Michael E. Gloves
Of Counsel
October 10, 1995
Lawrence W. Katz
1320 North Court House Road
Eighth Floor
Arlington, Virginia 22201
(703) 974-4862
----------------------------------------------------------------------
26 Comments of Bell Atlantic at 2-8 (filed Oct. 28, 1994).
----------------------------------------------------------------------
Before the
Federal Communications Commission
Washington, D.C. 20554
In the Matter of )
)
Amendment of the Commission's Rules )
and Policies to Increase Subscribership and ) CC Docket No. 95-115
Usage of the Public Switched Network )
Edward D. Young, III
Michael E. Glover
Of Counsel
September 27, 1995
COMMENTS OF BELL ATLANTIC
Lawrence W. Katz
1320 North Court House Road
Eighth Floor
Arlington, Virginia 22201
(703) 974-4862
TABLE OF CONTENTS
I. Introduction and Summary........................................................................ 1
II. Subscribership Solutions Should be Based on
Local Needs.................................................................................................3
III. Voluntary Educational Efforts Are the Key to
Subscribership.................................6
IV. Some of the Specific Measures Identified in the
Notice Are Not Only Contrary to Sound Policy,
But Also Exceed the Commission's Jurisdiction8
V. Conclusion.....................................12
Before the
Federal Communications Commission
Washington, D.C. 20554
In the Matter of )
)
Amendment of the Commission's Rules )
and Policies to Increase Subscribership and ) CC Docket No. 95-115
Usage of the Public Switched Network )
COMMENTS OF BELL ATLANTIC'
Introduction and Summary
With high telephone subscribership in the United States and a steady
increase over the past decade, there is not a nationwide deficiency that requires federal
intervention. Instead of adopting "pensive and unnecessary national programs, the
Commission should work with the states as appropriate to coordinate existing federal
programs, such as Link-up America and Lifeline assistance, with the ongoing efforts of the
states to ensure that subscribership levels remain high and that any pockets of low
subscribership that may exist are remedied with solutions tailored to the unique needs of
those areas.
Overall, telephone subscribership has shown a steady increase in the decade
since divestiture, rising from 91.6% in 1984 to nearly 94% today. Subscribership in Bell
----------------------------------------------------------------------
The Bell Atlantic telephone companies ("Bell Atlantic") are Bell Atlantic-Delaware,
Inc.; Bell Atlantic-Maryland, Inc.; Bell Atlantic-New Jersey, Inc. Bell Atlantic-
Pennsylvania, Inc.-, Bell Atlantic-Virginia, Inc. Bell Atlantic-Washington, D.C., Inc.- and
Bell Atlantic-West Virginia, Inc.
----------------------------------------------------------------------
Atiantic's seven jurisdictions is currently close to or above this national average. These
high penetration levels result from such factors as local service rate structures, public
education programs, state initiatives, and federal programs such as Link-up and Lifeline.
The state commissions in Bell Atiantic's region are continuing to address
the subscn'bership issue in varying ways, reflecting the varying demographics of the local
population and prevalent local economic and competitive conditions. The Commission
should continue to encourage such local programs, monitor the effectiveness of various
approaches, and work with state commissions to help ensure that their programs continue
to meet the needs of their citizens.
Conversely, the Commission should not attempt to prescribe uniform
national requirements for these local services, such as prohibiting the denial of dial tone
service for non-payment of toll calls and prescribing deposit requirements. Instead, state
commissions should continue to determine what programs are appropriate to meet the
needs and conditions prevailing in their particular jurisdictions. State commissions are
best able to weigh the trade-offs in deciding which programs will best achieve or maintain
high subscriber penetration in their individual states. A Commission-prescribed
nationwide program, by its nature, cannot be as effective as separate targeted efforts
designed to meet varying state and local conditions.
Moreover, the Commission should recognize that some of the more
complex and expensive state programs referred to in the Notice2 have not been as
----------------------------------------------------------------------
2 Notice of Proposed Rulemaking, FCC No. 95-28 1, CC Docket 95-115 (rel. July 20,
1995) ("Notice").
----------------------------------------------------------------------
successful as they may appear on the surface, while some of the simplest and least
expensive programs have been the most successful. For example, subscribership has
somewhat increased since the advent of Pennsylvania's complex program, known
generally as "Chapter 64," but at a slightly slower rate than the national average.
Moreover, Pennsylvania's program has not been without considerable cost, Bell Atlantic
has experienced a nearly 400% increase in uncollectables and a sharp rise in administrative
expenses. By contrast, Virginia, with one of the highest penetration levels in the country
and rapid subscribership growth, has implemented a much less expensive and intrusive
program. Accordingly, a program like Pennsylvania's Chapter 64 may not be cost-
effective in all states, and the Commission certainly should not prescribe such an elaborate
program, with all its hidden costs, nationwide. Instead, each state should continue to be
free to conduct its own cost-benefit analysis in light of local needs.
II. Subscribership Solutions Should be Based on Local Needs.
As the Commission recognizes, "a 100 percent penetration level is not
possible."' Certain people prefer not to have telephones in their residences or are satisfied
with access to public phones or telephones at their place of employment to meet their
communications needs. Others have no permanent dwelling and have access to telephones
at shelters or other community access locations. Still others find cellular service an
adequate substitute for landline service. As a result, many states may already be at or near
their maximum feasible penetration levels. Expensive programs designed to increase
----------------------------------------------------------------------
Id. at IT 44.
----------------------------------------------------------------------
subscribership will not significantly increase penetration levels in those states, but they
would be costly in terms of increased administration and uncollectables.
Each Bell Atlantic jurisdiction has implemented its own customized
program designed to retain or increase local telephone subscribership and each continues
to monitor and adjust its program to improve its effectiveness. Some states have
prescribed budget calling services for those who want access to telephone services but
originate few outgoing calls. Others have established more elaborate mechanisms, with
calling plans aimed at specific customer groups. Such state-by-state program development
and implementation is appropriate, because conditions vary widely. A program that meets
the needs of one state may not be appropriate in another. Moreover, Bell Atlantic's
experience has been that the simpler, less expensive programs have been the most
successful. This can be seen by a brief review of the widely divergent programs in several
of Bell Atlantic's jurisdictions.'
Pennsylvania's "Chapter 64" program is administratively complex and
expensive to administer. It requires separate bill balances for different services and
contains detailed rules regarding denial of service (including denial of service for non-
payment of toll), notification and negotiation, and payment schedules. As a result,
uncollectables have increased nearly 400% and administrative costs have risen more than
S24 million per year. Yet subscriber penetration under Chapter 64 has increased at a
slightly lower rate than the national average, and at least some of this increase can be
----------------------------------------------------------------------
4 A more detailed discussion of these programs appears in the Appendix.
----------------------------------------------------------------------
attributed to factors unrelated to Chapter 64, such as the availability of measured usage
plans and voluntary toll restriction.
Delaware has adopted a program similar to that in Pennsylvania. The
subscribership rate there, however, has remained flat under the program, while
uncollectables have shot up.
The District of Columbia has tried a different approach -- a series of very
low priced services for certain segments of the low-income community and a service with
mandatory toll restriction that allows disconnected customers to remain on the network.
Until very recently, however, the District's penetration rate steadily declined under this
program. Bell Atlantic is working closely with the Public Service Commission and
community groups to continue to improve the penetration rate.
By contrast, Virginia's program is limited to a low rate for individuals who
qualify for Medicaid or Food Stamps, combined with voluntary community education
efforts which Bell Atlantic has initiated in cooperation with state and local officials. This
program is relatively simple and inexpensive to administer. Yet Virginia has achieved the
highest penetration rate in Bell Atlantic and one of the highest in the country, and its rate
of increase exceeds the national average.
This experience demonstrates that no one solution is appropriate
nationwide, and that each approach has its costs and benefits. While the results of these
customized programs are not always as favorable as originally envisioned, the state
commissions are in the best position to assess local needs and to develop or adjust
programs based upon the unique conditions faced in that jurisdiction. Moreover, the cost
to the public of an inappropriate program, both in terms of uncollectables and
administrative expenses, may far outweigh the benefits. Accordingly, the Commission
should not attempt to impose a national program on all state jurisdictions. Instead, it
should continue to monitor the situation, work with the state commissions, individually
and through NARUC, and advise local commissions of the results of programs that other
states have adopted.
If some additional formal action appears warranted, the Commission should
consider convening a federal-state joint conference under Section 41 0 (b) of the
Communications Act.' This vehicle can provide a forum for state and federal
commissioners to trade ideas and create innovative solutions to help retain or increase
subscribership in targeted states or localities.
Properly targeted voluntary educational efforts can be more effective than
complex programs to help maintain high subscriber penetration levels. As the Commission
acknowledges, some eligible consumers may be unaware of the availability of certain
programs and services to keep them on the network.' Not only might they have no
knowledge that they are eligible for low-income programs such as Link-up America and
Lifeline assistance, but they may not know that a toll restriction service is being offered.
----------------------------------------------------------------------
· 47 U.S.C. [[section]] 410 (b).
· Notice at ¦ 46.
----------------------------------------------------------------------
The homeless may not be aware that shelters and other community service points provide
access to local telephone service and, in some cases, voice mailbox capabilities. Other
customers who are not eligible for subsidized services may be unaware of low-cost local
dialtone options that may meet the needs of persons who make relatively few local calls.
Community education efforts aimed at such targeted groups as low-income
individuals and families and the elderly can help ensure that the target population learn
about available programs. Educational efforts can include speakers at community
meetings; brochures distributed through community service points, such as churches,
schools, homeless shelters, and welfare and Social Security offices; and training programs
for such outreach personnel as clergy, other community leaders, and social workers. To
have maximum effect such programs should be developed jointly by the telephone
company, the state commission, local government officials, and community groups.
Virginia, with Bell Atlantic's highest subscribership, is a case in point. Bell
Atlantic-Virginia produced a very effective video for senior citizens on what telephone
services are available and how best to use them. Bell Atlantic also developed a brochure
with similar information that is disseminated through community organizations and
associations and at the state fair and other exhibitions. These educational efforts have
produced a very favorable reaction from the target community.
Accordingly, the Commission should work with the industry, with state
commissions and local governments, and community and consumer organizations to help
develop or augment voluntary community education programs designed to spark
awareness of available services, programs, and pricing options.
----------------------------------------------------------------------
IV. Some of the Specific Measures Identified in the Notice Are Not Only
Contrary to Sound Policy. But Also Exceed the Commission's Jurisdiction.
The Commission has identified in the Notice a variety of possible
regulations designed to retain or increase subscriber penetration. Bell Atlantic has
demonstrated above why adoption of these or other programs should be left to the states.
In addition, some of the specific proposals are under exclusive state jurisdiction, and the
Commission would be exceeding its authority if it adopted them.
For example, one proposal would prohibit exchange carriers from denying
local service for non-payment of interstate toll charges.7 As shown above and in the
Appendix in the description of individual state plans, similar prohibitions have had little
effect on subscribership in states such as Pennsylvania and Delaware where they have been
adopted, but they have resulted in skyrocketing uncollectables and, in some cases,
administrative costs.' These cost increases may force some ratepayers to subsidize other
customers' unpaid toll charges. The record does not support a finding that the benefits, if
any, of a prohibition on termination of local service for nonpayment of toll charges
exceeds these additional costs.
----------------------------------------------------------------------
7
Id. at 11 12.
----------------------------------------------------------------------
Increases in subscribership in Pennsylvania have failed to keep pace with the nationwide
average and Delaware's penetration has remained flat since its program was initiated. By
contrast, Virginia and West Virginia, that do not prohibit denial of local service for non-
payment of toll charges, have experienced increases in subscribership between 1984 and
March 1995 that exceed the national average, and the penetration level in Virginia is
among the highest in the country.
terms and conditions under which a telephone company may discontinue local dialtone
service. The Communications Act, however, expressly denies this Commission
jurisdiction over precisely these types of "practices ... or regulations for or in connection
with intrastate communications service.""
While the Notice suggests that the Commission may have authority over
DNP because of its impact on provision of interstate telecommunications services," this
suggestion has the issue backwards. A DNP policy specifies conditions under which a
telephone company may deny local service. The service directly affected by the policy is,
therefore, intrastate service, which is under the states' exclusive purview.
In fact, the very case cited in the Notice to support possible Commission
jurisdiction denies the Commission that authority. " In that case, the Maryland Public
Service Commission had attempted to prescribe a charge on interexchange carriers
("IXCs") for the right to have local service denied for non-payment of the IXCs' charges.
In upholding the Commission's finding that Maryland had impinged on Commission
jurisdiction by prescribing a rate for an interstate service, the Court of Appeals
distinguished jurisdiction over the rates charged to an IXC for such a service from
jurisdiction over the right of a LEC to deny a customer's local service for non-payment of
toll charges:
----------------------------------------------------------------------
47 U. S.C. S 152(b).
Notice at ¦¦ 31-32 & n.43.
13 See Public Service Comm'n of Maryland P. FCC, 909 F. 2d 15 1 0 (D.C. Cir. 1990)
("Maryland").
----------------------------------------------------------------------
The state argues that the implications of [the FCC'S]
position would mean that the FCC would then have
jurisdiction to prevent the states from cutting off local
service for any reason .... But we do not think that follows
at all... [T]he FCC has recognized the states' strong
parallel interest in the conditions under which an individual
would have access to local service; it has left to the states
the decision whether LECS can offer DNP at all. There is
thus simply no reason to believe that the FCC will seek to
interfere with the states' police power in this respect. 14
Consequently, the very case cited in the Notice to support possible Commission
jurisdiction over DNP actually denies that jurisdiction.
The same considerations demonstrate that the Commission should not
adopt nationwide deposit requirements, another of the measures proposed in the Notice."
From a policy perspective, deposit requirements should be addressed at the state level
where they can be tailored to address unique local circumstances. From a fee
standpoint, deposit provisions are intrastate tariff conditions that are not subject to this
Commission's jurisdictions
----------------------------------------------------------------------
14 909 F.2d at 1515, n.6 (emphasis added).
See Notice at '¦ 26.
----------------------------------------------------------------------
If the Commission nonetheless attempts to prescribe deposit requirements, or issues
recommendations to the states, it should condition lowered deposits on the customer's
subscribing to toll restriction and agreeing to a strict repayment plan. If a customer misses
payments or eliminates the toll restriction, the exchange carrier should be permitted to
increase the deposit.
----------------------------------------------------------------------
V. Conclusion.
Accordingly, the Commission should not prescribe uniform national
regulations relating to local telephone subscribership. Instead, it should leave program
development to the states and localities that are in a far better position to ascertain the
needs of their constituents.
Edward D. Young , III
Michael E. Glover
Of Counsel
September 27, 1995
Respectfully Submitted,
The Bell Atlantic Telephone
Companies
By their Attorney
Lawrence W. Katz
1320 North Court House Road
Eighth Floor
Arlington, Virginia 22201
(703) 974-4862
APPENDIX
Subscribership Programs In Several
This Appendix consists of a discussion of programs in four of Bell
Atlantic's jurisdictions that are intended, at least in part, to increase telephone
subscribership. As will be seen, the success of the programs do not necessarily correlate
positively to their cost or complexity.
Pennsylvania
Pennsylvania's Chapter 64 program is an administratively complex system
that, among other provisions, requires telephone bills to show separate balances for basic
local exchange services, toll, and non-basic services and prohibits denial of local service
for non-payment of toll or non-basic charges. It also has provisions prescribing fairly
protracted notification methods and periods before local service may be denied for failure
to pay even local charges.
Although subscribership rates have remained high in Pennsylvania, the
increase in penetration since the advent of Chapter 64 has been slightly less than the
national average.' Pennsylvania entered Chapter 64 with a high subscribership level,
Subscribership levels in Pennsylvania increased by 1.70/a from 1984, the last year before
initiation of Chapter 64, to March of 1995. Nationwide, penetration in that same period
increased by an average of 2.3%. FCC, Com. Car. Bur., Industry Analysis Div.,
Monitoring Report, CC Docket No. 87-339 (May 1995) ("Monitoring Report"), U.S.
Census Bureau, Current Population Surveys (1995) ("Census Surveys").
Is
largely because of its unique demographic characteristics. Pennsylvania's population
relatively elderly2 and immobile 3 with more people residing in rural areas than any other
state in the country. Pennsylvania has a higher percentage of its population on Social
Security and a smaller percentage below the poverty level than the national average. All
of these factors led to a high penetration level.
Other factors, unrelated to Chapter 64, are likely contributors to the
increased penetration since 1984. For example, measured usage plans became available
which afford a lower-priced alternative to flat-rated service for customers who place
4 -Pennsylvania, Inc. also began to offer a low-priced
relatively few local calls. Bell Atlantic
voluntary toll restriction service.
On the other hand, the Chapter 64 program is costly. Regulations in
Pennsylvania require Bell Atlantic to apply partial payments to basic local service, toll, and
non-basic services, in that order, and to terminate local service only if the customer's
payments are insufficient to cover the local portion of the bill. Before terminating service,
however, Bell Atlantic must in most instances offer the customer an extended payment
plan and, if the customer accepts, local basic service must be maintained. Local service
may then be denied only if the customer fails to meet his or her payment commitments,
and then only after an additional protracted period of notice and negotiation. As a result
of all these requirements, uncollectables in Pennsylvania are the second highest of any
state in the country, having increased 393% since Chapter 64 became effective in 1985,
and administrative costs have risen by over S24 million per year.
----------------------------------------------------------------------
2 Edwin R. Byerly and Kevin Deardoff, National and State Population Estimates. 1990
to 1994, Pub. No. P25-1127, US. Bureau of the Census (I 995).
3 Census Bureau Data Reported by Claritas, Inc.
4 Over 271/o of Bell Atlantic-Pennsylvania's residential customers subscribe to one of
these plans. Other Bell Atlantic jurisdictions have similar measured service plans.
----------------------------------------------------------------------
Virginia
Virginia has the highest subscriber penetration in Bell Atlantic and the fifth
highest in the United States at 96.90/a in March 1995.7 In addition, subscribership in
Virginia has increased over time at a higher rate than the national average.8 Yet Virginia's
program is relatively simple - a low local service rate for individuals who qualify by being
on Medicaid or Food Stamp programs, coupled with a voluntary community education
program consisting of the distribution of informational brochures and a video informing
senior citizens of available telephone services and how best to use them. Administering
this program is relatively inexpensive and Bell Atlantic's uncollectable rate in Virginia has
not increased significantly. Virginia's experience shows that complex programs with high
administrative costs and soaring uncollectables may not always be the appropriate means
of increasing subscribership.
Census Surveys.
Subscribership in Virginia increased 3.9"/o from 1984-March 1995, compared to a
nationwide average increase of 2.3%.
Delaware
In 199 1, Delaware instituted a toll denial program somewhat similar to that
in Pennsylvania. Since that program began, subscriber penetration in Delaware has
remained fairly constant, starting at 96-011/a in 1990, the year before the program began,
increasing to 96.4% in 199 1, dropping to 95.5% in 1994, and finally reaching 96. 1 % in
March, 1995.' During the same period, Bell Atlantic's uncollectables in Delaware have
risen 1591/e. The toll denial plan, therefore, added nothing to subscriber penetration, but it
did contribute to higher costs to ratepayers, interexchange carriers, and Bell Atlantic.
District of Columbia
The District of Columbia, with very different demographics from the states
discussed above, has tried other approaches. D.C. is an entirely urban jurisdiction. Its
population is relatively young and highly mobile, with an ethnically diverse population,
including a large number of immigrants. The District also has high unemployment and a
large number of individuals below the federal poverty level. The population includes many
homeless persons and others who are in short-term rental housing. With these
demographics, it is not surprising that subscribership in the District is lower than in other
Bell Atlantic jurisdiction although it is higher than in ten other states. The D.C. Public
Monitoring Report and Census Surveys. These changes are well within the margin of
error of the study and are, therefore, statistically insignificant.
Service Commission has prescribed lifeline rates of S3.00 (for qualified low income
families) or S1.00 (for low-income elderly), funded by other ratepayers, D.C. also has a
special service for customers whose local service has been disconnected for non-payment
of either local or toll bills, or are on the verge of being disconnected. This service includes
mandatory toll restriction.
The District's program has had fair results to date. Subscribership in the District
declined from nearly 95% in 1984 to 90"/o in 1994, a decline attributable in part to the
significant middle class population shift from the city to the suburbs during that period.
After the measures discussed above were adopted, telephone penetration began to
improve, increasing to 92% in March, 1995.6 Bell Atlantic is continuing to work with the
Public Service Commission and community groups to find other ways to increase
subscribership. These include educational efforts and making telephones and voice
mailboxes available in homeless shelters and other community access points.
----------------------------------------------------------------------
6 census Surveys and Monitoring report.
----------------------------------------------------------------------
Before the
Federal Communications Commission
Washington, D.C. 20554
In the Matter of )
)
Amendment of the Commission's Rules )
and Policies to Increase Subscribership and ) CC Docket No. 95-115
Usage of the Public Switched Network )
REPLY COMMENTS OF BELL ATLANTIC'
The overwhelming majority of commenters -- including a cross-section of
local exchange carriers, interexchange carriers, state commissions, and others - agree that
the issues raised in the Notice2 are best addressed at the state level. Overall,
subscribership is at a high level. To the extent there are pockets of low penetration within
some states, the record shows that the reasons for low subscribership vary widely, and
states are in the best position to target policies and programs to the need. By contrast, a
nationwide mandate may not remedy the targeted problem, but it would cost consumers
and carriers millions in implementation costs, uncollectables, and administrative expenses.
The few parties that urge the Commission to impose nationwide
regulations ignore the social costs to the many that would result from rules that benefit
----------------------------------------------------------------------
' The Bell c telephone companies ("Bell Atlantic") are Bell Atlantic-Delaware,
Inc.. Bell Atlantic-Maryland, Inc. Bell Atlantic-New Jersey, Inc. Bell Atlantic-
Pennsylvania, Inc.; Bell Atlantic-Virginia, Inc.; Bell Atlantic-Washington, D.C., Inc.; and
Bell Atlantic-West Virginia, Inc.
' Notice of proposed Rulemaking, FCC No. 95-28 1, CC Docket 95-115 (rel. July 20,
1995) ("Notice").
----------------------------------------------------------------------
only a very few. Most telephone subscribers pay their bills on time. Most of the rest are
able to work out mutually-acceptable payment arrangements, and Bell Atlantic and other
exchange carriers try to accommodate their needs. Broad regulations, such as a
prohibition on denial of local service for non-payment of toll bills ("DNP"), even when
imposed on a state-wide basis, harm the vast majority of consumers by causing bad debt to
soar 3 and pushing administrative costs through the roof 4 DNP prohibitions have also
become an open invitation for fraud, as unscrupulous subscribers use loopholes in the law
to avoid paying for the services they enjoy.'
All this despite statistics showing that high toll bills are frequently not the
root cause of may customers' difficulties. For example, Bell Atlantic recently sampled its
Pennsylvania customers whose local service was disconnected for non-payment and found
that some 700/o had only $20.00 or less in unpaid toll calls prior to disconnection, while
nearly 45% had no pending toll charges at all. In addition, Bell Atlantic-Pennsylvania's
experience is that the percentage of customers who have had their toll service cut off for
non-payment of long distance bills and later fail to pay their local bills is three times the
percentage of all customers who fail to pay for local service. Therefore, in many
instances, prohibiting disconnection of local service for non-payment of toll will serve only
----------------------------------------------------------------------
' See, e-g-, Comments of Pacific Bell and Nevada Bell on the Notice of Proposed
Rulemaking at 18, MCI Comments at 15-16, Comments of OAN Services, Inc. at 3.
4
See, eg., GTE's Comments at 35-37, Comments of Rochester Telephone Company at
4-6.
5 See eg., Comments of the Competitive Telecommunications Association at 4, GTE's
Comments at Att. C.
----------------------------------------------------------------------
to postpone the day when local service is cut off as well. Meanwhile, uncollectables
continue to mount up.
Finally, there is no evidence of any correlation between prohibiting DNP
and increased subscribership.' To the contrary, as pointed out in Bell Atlantic's opening
comments, in Pennsylvania where DNP has been prohibited, the rate of subscriber growth
has lagged behind that of other Bell Atlantic jurisdictions that continue to permit DNP and
7
has trailed the national average. Therefore, a Commission prohibition order, even if
lawful, would result in the worst of both worlds. It would sharply increase the carriers'
costs but would not increase subscribership.
Moreover, as Bell Atlantic has shown, the Commission does not have
jurisdiction to prohibit states from denying local service.' Likewise, the Commission does
not have the authority to mandate multiple-balance billing, as the Maine PUC proposes - 9
Moreover, requiring exchange carriers to isolate the billing of interstate calls from other
services, would be expensive and of little value. Ben Atlantic does not, anywhere in its
region, separately show billing for interstate and interstate toll calls. To require such
separate billing would mean that Bell Atlantic would need to divide the toll calls placed
with each interexchange carrier for which it bills into interstate and intrastate. Such a
----------------------------------------------------------------------
6 See, e-g-, Comments of Gateway Technologies, Inc. at 2-3.
7 Comments of Bell Atlantic at 3
Id. at 9-1 1.
9 Letter dated September 26, 1995 from Christopher Simpson, Administrative Director,
Maine Public Utilities Commission, to the Secretary, Federal Communications
Commission, at 3-4.
----------------------------------------------------------------------
process would be a useless exercise that would be unnecessary to comply with state DNP
policies.
Moreover, the Commission has no authority to prescribe multiple balances,
or other billing requirements, in connection with intrastate services, whether local or toll.
In asserting jurisdiction over billing and collection of interstate services in 1986, the
Commission invoked its Title I authority, arguing that billing and collection is "incidental"
to interstate and foreign communications.10 That authority does not, however, extend to
billing for intrastate toll and local services, which Title I of the Act leaves to exclusive
state jurisdiction. " Accordingly, the Commission has no authority to prescribe multiple-
balance billing in connection with intrastate and local services.
Even if the Commission were to consider asserting such authority, it should
not as a matter of policy attempt to preempt the states. Where states require such
multiple-balance billing to implement their DNP policies, they have ample authority to do
so. Where they find no need for carriers to show multiple balances, there is no
justification for requiring carriers to undertake the expense of altering their billing systems
to show multiple balances. This issue should be left to state determination.
Two new local exchange service providers point out that increased
competition will offer new service choices, presumably 'including low-priced services, that
----------------------------------------------------------------------
10 Detariffing of Billing and Collection Services, Report and Order, 102 F. C. C. 2d
I 1 50, ¦ 36 (1986), citing 47 U. S. C. ¤¤ 152 (a) and 153 (a).
See 47 U.S. C. ¤ 152 (b).
----------------------------------------------------------------------
themselves will increase subscribership.12 Teleport also asks that Lifeline and Link-up
assistance be available to customers who choose any local exchange provider, not just the
incumbent provider. " This issue, too, should be left to the states, to be decided in concert
with each state's competitive policies.
In the event the Commission does adopt any of the requirements proposed
in the Notice, however, it should extend them to new local exchange competitors as well
as incumbents. 14 New exchange entrants have been asking state commissions to treat
them the same way as incumbent exchange carriers. If they want the benefits of equal
treatment, including the access to low-income programs that Teleport seeks, they should
be required to incur equal obligations, including any subscribership requirements that the
Commission -- or a state - imposes on exchange carriers.
----------------------------------------------------------------------
12 Comments of NES Communications Company, Inc. at 2-4, Comments of Teleport
Communications Group Inc. ("Teleport") at 1-4.
" Teleport at 4-6.
14
See GTE's Comments at 4-
----------------------------------------------------------------------
The Commission should leave to the states programs aimed at increasing
subscribership and should not adopt the nationwide programs that it proposed in the
Notice].
Edward D. Young, M
Michael E. Glover
Of Counsel
November 14, 1995
Respectfully Submitted,
The Bell Atlantic Telephone
Companies
By their Attorney
1320 North Court House Road
Eighth Floor
Arlington, Virginia 22201
(703) 974-4862
CERTIFICATE OF SERVICE
I hereby certify that on this 12th day of April, 1996 a copy of the foregoing
"Comments of Bell Atlantic" was sent via first class mail, postage prepaid, to the parties on the
attached list.
Tracey
[Service list deleted from online version.]