Federal-State Joint Board on
Universal Service

Before the
Federal Communications Commission
Washington, DC 20554

COMMENTS OF THE
						FCC 96-93
						CC Docket No. 96-45
GEORGIA PUBLIC SERVICE COMMISSION
REGARDING THE NOTICE OF PROPOSED RULEMAKING AND
ORDER ESTABLISHING JOINT BOARD

Introduction

The Georgia Public Service Commission files these comments in response to the Notice of Proposed Rulemaking and Order Establishing Joint Board on Universal Service CC Docket No. 9645. The Georgia Public Service Commission (GPSC) is charged with, among other things, the administration of the Georgia Universal Access Fund (UAF). This fund was created by the Georgia Legislature in the 1995 session and is now law (see O.C.G.A.[[section]] 46-5-167). A complete copy of The Telecommunications and Competition and Development Act of 1995 (O.C.G.A. [[section]] 46-5-160 et.seq) containing this provision is attached. This Act is a clear policy directive of the Legislature and the GPSC is in the process of full implementation of this Act. A number of the GPSC comments are directed towards the stated goal of seeking to enhance the competitive market for telecommunications services within the state (O.C.G.A.[[section]] 46-5-168(f)).

General Comments

In 1994 the State of Georgia adopted Strategic Planning as a concept which would be used in State Government. In 1995 the Georgia Legislature passed O.C.G.A. [[section]] 46-5-160 et.seq which opened telecommunications local exchange service to competition. In 1996 the Congress of the United States passed the Telecommunications Act of 1996 (Act). In 1995 the GPSC had to "reinvent"[1] telecommunications regulation in Georgia in response to the legislature passing O.C.G.A. [[section]] 46-5-160 et.seq. The GPSC hopes that the lessons learned by the GPSC will prove useful to the FCC and the

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1 Reinventing Government, How the entrepreneurial spirit is transforming the public sector" by David Osborne and Ted Gaebler

USF Joint Board in "reinventing" federal telecommunications in response to the Act. These comments will address the mission statement contained within the Act, the vision for the future contained in the Act, the relevant trends and constraints and how each of these apply where appropriate to the questions contained in your notice of proposed rulemaking.

Mission Statement

The GPSC believes that the Congress has given us an excellent mission statement, "to make available, so far as possible, to all the people of the United States without discrimination on the basis of race, color, religion, national origin, or sex, a rapid, efficient, Nation-wide wire and radio communication service with adequate facilities at reasonable charges..."(47U.S.C.[[section]]151). All actions of the FCC and the Joint Board should be measured against this mission statement.

Vision of the Future

The Congress has given us a clear vision of how the telecommunications industry should develop. The United States is to have a state-of-the art telecommunications infrastructure which will be produced by a competitive market wherever it is possible. Congress chose a competitive model because competition is the best possible regulator, where it can work. Congress also recognized that while competition is economically very effective and efficient, competition can produce uneven results. The GPSC believes that Congress correctly assumed that competition would develop initially and work best in urban (low cost, large markets) areas. The Georgia Legislature came to the same conclusion.3 It is clear to the GPSC that Congress intends for us to let competition work wherever it can and that we are to impose only those restrictions which are necessary to accomplish the mission (see mission statement). It is also clear that Congress intends for us to use what does develop in the urban areas from the competitive model as a guide to duplicate the results in areas where competition has not worked. The new USF is to be created to ensure that the mission would be accomplished even if competition failed to achieve even results. Therefore, the USF is an "exception" to the general rule of competition and must always be treated so.

Congress has recognized that the old methods with a centralized approach will not work. The Act clearly envisions a new era of federal-state cooperation in a decentralized framework where the FCC oversees and supervises the realization of the mission and vision, but delegates to the states, the industry, and others, the responsibility of detailed implementation. The GPSC experience has indicated that Congress has picked a very effective and efficient way to address the problem. The GPSC has been very successful in applying these principles to reach our objectives efficiently and effectively. The GPSC, with no additional personnel or funds, has successfully begun the implementation of O.C.G.A. [[section]] 46-5-160 et.seq. For FY-97 the GPSC met the Governor's budget objective of reducing and/or redirecting 5% of our budget. The GPSC has already approved a

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2 op. cite

3 O.C.G.A. [[section]] 46-5-160 et.seq

number portability plan and we are in the process of implementing the approved number portability solution. We could not have done so if it were not for the efforts of the participants in the process. We would not have had this cooperation with a "command and control" approach. We gave the participants a set of goals and guidelines and lightly guided their efforts. They did the work; the GPSC set the policy. We are proceeding to establish the UAF in a like manner. We say all this to urge the FCC and Joint Board to adopt this approach. Adopt rules, policies and procedures which are flexible and goal oriented. Formulate rules which allow the states the ability to do the jobs their legislatures have set for them. Approve rules which recognize that one size does not fit all and that there are differences between the states. Don't adopt centralized "one size fits all" command and control procedures which will impede progress rather than help. Set up a system where we can work together to achieve universal availability to all Americans at just, reasonable and affordable rates. It is the only cost effective and efficient way the goal can ever be achieved.

Relevant Trends and Constraints

The first obvious trend is the movement toward containing, arresting, and/or reversing the growth

of government. This trend is going to restrain the availability of resources to administer the USF on service commission in 28 states.5 It seems obvious to the GPSC that those states which have

established such funds have created funds which are separate and distinct from the new federal USF and, therefore, do not rely on or burden federal universal service support mechanisms. The FCC should not preempt any of these state funds since to do so would be against the express language of the Act and the separation of powers amendment to the United States Constitution (U.S. Const. Amend. X). Instead, the FCC should rely on these states to administer the federal USF and their own funds, if those states so choose, and to use the separate state fund for the specific state purposes which are outside the legal constraints of the Act. This approach results in finding solutions which are not possible if all solutions are confined to the specific constraints of the Act. The Act should never be construed to eliminate worthwhile state programs which do not depend on federal funds nor burden federal universal service support mechanisms. To conserve space, the balance of the legal constraints will be discussed within the specific section of the GPSC conunents.

The same principle also applies to other worthwhile mechanisms which develop external to the federal USF. One example is a voluntary program which collects money from subscribers and distributes it to the desired program. Illinois has a low income fund which relies on voluntary customer

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4 Unpublished study by NRRI for GPSC

5 op cite

contributions.[6] The more we can solve the problem with voluntary programs, the better off the United States will be. Governments have an outstandingly poor record of meeting the needs of low income groups.[7] The more voluntary a program is the more govenunent can stay out of the process and let those who can, and will, get the job done effectively and efficiently.

The last constraint which we will discuss in this section is "the competitively neutral" concept. If we are to realize our vision of a state-of-the art competitive telecommunications industry which deploys developing technology rapidly and efficiently, we must make sure that any variation of the competitive model is as neutral as possible. One way to accomplish this is to make it as small as possible. A 1% burden is much more competitively neutral than a 10% burden. There is some point at which the burden will be so great that it will impede the ability of the system to achieve the mission. We do not laiow where that point is and suggest that we try to stay as far away from it as possible. How can we pick a point which will allow us to accomplish our mission but not overload the telecommunications industry or its customers? We suggest that the best point at which to start is where we are now. The Act clearly mandates only one new program. The old paradigm has gotten us where we are now. A good starting point for a budget for the new process is what we are spending now. We can also minimize or eliminate the need for direct interference by using other methods to reach certain areas or groups of people. Voluntary programs are one method which we have already mentioned. Taking a "global" look instead of a service-by-service look is another. There will be some areas in which the competitive market will be working extremely well. There will be areas where the volume of business has attracted a number of competitors, a state-of-the art infrastructure is being built and maintained, subscribership is high, prices to the customers are low and the mission is being accomplished. These competitive zones do not need a USF and would not have one in a completely competitive market. These areas are the source of the "net payers". The "net takers" should be those areas where the total telecommunications business does not produce the revenues to support the industry. Another way to keep the fund from getting too large is to strictly construe the Act with respect to the USF provision. The Act contains some very specific principles and directions which clearly indicate a Congressional intent to place limits on the size as well as the scope of the fund. Consistent with these general observations, the GPSC makes the specific comments which follow.

Specific Comments

Goals and Principles of Universal Service Support Mechanisms

Considering the mission statement, the GPSC believes that the following statement is inconsistent with the Act and the express intent of Congress.

Items 4-8

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6 op. cite

7 See footnote 1

On page 5, item 4 the FCC states "We seek comment on whether there are appropriate measures that could help us assess whether "affordable" service is being provided to all Americans". The GPSC contends that the proper and legal interpretation of the Act is "We seek comment on whether there are appropriate measures that could help us assess whether access to "affordable" service is being provided to all Americans." The omission is akin to the bible publisher who left out the "not" in one of the commandments. We could not determine from the context of the NPRM whether it was intentional or accidental. We do know that it is wrong and should be corrected in either case. We are going to assume that it was the latter and not the former and not elaborate. If it was intentional we ask you to compare the two and see that the statement in the NPRM is impossible to attain, very expensive to attempt to achieve and an abuse of discretion by the FCC. The corrected statement is not only possible to achieve, it is the one intended by Congress.

What is the appropriate measure of "affordable" service. Your footnote 13 on page 5 provides one good measure. Subscribership among targeted populations may be one indicator, however, caution must be exercised in using this criteria. There may be, and probably are, other causes for low subscribership besides the price of the services. For example, the GPSC believes that the FCC has correctly identified one of the major impediments to subscribership and that is the up-front cost of getting unrestricted access to telephone service. Both the FCC and the GPSC (and perhaps other states) need to adjust our telephone service rules to reflect the fact that it is now possible to restrict the delivery of telephone service of various types. There are now better ways to balance the needs of the consumer for service with the needs of the telecommunications companies to be protected from economic loss from bad debts. Customers can now be offered a choice. We need to remove the regulatory impediments which prevent or discourage the providers from actively pursuing this market. Special offerings need to be developed which address the inability of some people to manage their money. For example, restricted toll access could be provided. We are sure that with the advent of competition some very innovative plans will be developed to cater to this market. One of the first competitive providers which the GPSC certified was a reseller who intends to cater to this same market. There may be pockets of low penetration with social and demographic factors which keep some groups from being subscribers. Every reasonable effort should be made to determine if factors other than price are the true cause of low subscribership. If we could successfully eliminate other causes of low subscribership, then the price to the subscriber would be the indicator for the final screening. The remaining problem win be to determine which level of subscribership is the cutting score that determines if the service is "affordable". The exact level should vary with the type of service. We believe that each person has made a value judgment which reflects the value of the service to each individual within the group. Some have "voted" that the service is affordable and some have "voted" that it is not. We should respect the rights of individuals to make this choice. A good benchmark is where we are now with existing services. See our comments on support for low income customers for more specifics.

You ask "Which advanced telecommunicafions and information services should be provided, and how to provide access effectively to Americans in various geographic regions?" The GPSC is going to answer the following question instead, "How are we going to determine which advanced telecommunications and information services should be provided, and how to provide access effectively to Americans in various geographic regions?" The Act clearly indicates that this is to be a continuous process with periodic review. Set up a procedure where the FCC or some other party can initiate a proceeding to identify the specific service and cost thereof The proceeding should use the principles and directives in the Act with the moving party having the burden of proving that all principles and directives are met and that there is a reasonable funding mechanism to pay for the service. The individual states, and possibly groups of states, should have an active role in resolving regional differences. A state could be a moving party in a proceeding for example. The same comments apply to item 6 on pg. 6. Comments on item 8 are contained in the general comments of the GPSC.

Item 9. The GPSC differs from the interpretation of the FCC. Congress clearly intended to establish a competitive, privately held telecommunications network to replace the monopoly or semi-monopoly regulated market. AR four criteria in [[section]]254(c)(1) should be met before the FCC establishes an exception to the free market. Ignoring any of the criteria will be an abuse of discretion by the FCC, arbitrary and capricious, and a violation of the intent of Congress.

Items 10 & II. The GPSC makes no additional comments but refers you to our previous relevant comments.

Item 12. The GPSC agrees with the comments of the FCC.

Item 13. Requires no comment.

Item 14. The FCC asks whether the Act requires that all regions of the country must have access to all telecommunications and information services, and if so, how this can best be effectuated in a "pro-competitive, de-regulatory environment." The Act clearly recognizes that there will be regional differences and that the states have an active part in administering the Act. The states also retain the right to set up independent funds to address state needs. The GPSC contends that these separate funds are a constitutional right under the separation of powers amendment to the United States Constitution (U.S. Const. Amend. X). The FCC needs to establish a procedure where a bona fide demand for service will be met if the service meets the criteria in the Act. See our previous comments on procedures.

criteria in the Act. See our previous comments on procedures.

Support for Rural, Insular, and High Cost Areas

The GPSC will comment on the services listed in item 16 and repeated in items 18, 19, 20, 21, 22, and 23 and make a general comment on the balance of the section.

Item 18. Voice Grade Access to the Public Switched Telecommunication Network is not a service. It is a group of services. Some will qualify (i.e. single party wireline) some will not (i.e. cellular phones). The FCC can use wireless technology to provide single party "wireline" service. The FCC cannot support cellular phone service with the

USF.

Item 19. The GPSC agrees with the FCC. This service is a UAF item in Georgia.

Item 20. Single Party Service is almost universal in Georgia. It must be included.

Item 2 1. Access to Emergency Services is a State matter which should be delegated to the states. Georgia already has a law to support 911 & E-91 1. This law is in the

appendix.

Item 22. Access to Operator Services is a competitive service in Georgia and does not need any universal service support. The market can take care of this. It is universally available and affordable. USF support for operator services is a good example of an unnecessary subsidy for something which can stand alone.

Item 23. The items in 23 are state matters which should be left to the states and/or addressed under other federal code sections. Georgia has addressed relay service, directory listings, and equal access. InterLata Interexchange service has been competitive in Georgia since 1984. IntraLata Interexchange competition was introduced in 1991.

Items 24 to 49 The GPSC offers the following general comments on items 24 to 49. You have proposed too many services for the USF. You are going to have to say no to a lot of the services proposed to be included in the USF. See (O.C.G.A. [[section]] 46-5-160 et.seq in the appendix for the Georgia Legislature's Est of UAF services. There needs to be a transition period (item 40). The FCC and the state commissions should develop a cooperative program to ensure that all areas receive each of the services supported by federal universal support mechanisms.

Support for Low-Income Consumers

Item 50. Low-income consumers should receive support for the items fisted by the GPSC for rural, insular and high-cost areas to the extent any such support is necessary for a reasonable subscribership. " Access to" means a reasonable opportunity to purchase at a reasonable and affordable price in the Act. The GPSC is suggesting no additional services.

Item 51. This matter should be left to the states. Georgia is the "flat rate state." We have the largest toll free calling area in the world in Atlanta. We have just instituted EAS for a large number of routes outside the Atlanta Metro area. Very few Georgia subscribers have measured rate service and very few have message rate service. One of our message rate tariffs is not income restricted so some subscribers to this service are high income second line subscribers. BellSouth currently offers a special local service calling plan entitled Georgia Community Calling. The terms of the plan provides that a subscriber is billed one-half the monthly residential one-party flat rate (i.e. for the Atlanta Metropolitan Area $8.08). Included in that rate is a monthly allowance of 30 out-going calls. A subscriber can receive unlimited incoming calls. AU out-going calls above the allowance are billed at a rate of S. 12 per message. This calling plan also provides a 40% discount on all intraLATA toll calls within a 55 mile radius of the subscriber's serving wire center. This rate is available to all residential customers throughout BellSouth's service area.

BellSouth and all the Independent Telephone Companies participate in the FCC's Link-up program. All telephones companies provide the matching installation funds as provided in the terms of the Link-up program. In addition, BellSouth participates in the FCC's Life-line program by matching the $3.50 monthly credit given. Subsequently, with a total monthly credit of $7.00, a subscriber residing in the Atlanta local calling area, qualifying the life-line program, who elects the Georgia Community Calling Plan can have access to basic local exchange service at a monthly charge of $4.58. A single party flat rate cost these same people $12.65 to call 2,000,000 access lines toll free. None of the above figures include tax, FCC charges, 911 access, etc. These need to be added when applicable.

Our experiment with measured service indicated that only those people who could take the service and get a discount without changing their calling pattern subscribed to the service. Our low income customers have made it clear that they prefer the flat rate at an affordable price. We have done our best to accommodate them. Because of this, in Georgia, measured and/or message rate service does not meet the "substantial majority" test contained in the Act. California can legally use their fund for this purpose. Neither California nor the FCC can use the federal fund for this purpose, if the Georgia penetration rates exist nationwide. One size does not fit all. Leave this one to the states.

Item 52. Informnation access is another area which should be jointly addressed by the FCC and the states. We have a Public Information Office that would be one source for publishing that information. Carriers could be encouraged to put this information in bill stuffers, etc. Maximum use should be made of existing resources without creating another subsidy.

Item 53. The GPSC considers this more of a condition of service. This type of information should be provided to ALL subscribers. However, the last thing we need is a separate subsidy to provide this information. For example, under O.C.G.A. [[section]] 46-5- 160 et.seq. the cost of providing this information could be included in the common cost allocations to reasonable actual cost of providing service. The FCC should only directly subsidize those services which require an investment in building the telecommunications network. The guiding principle is if you deliver the service below cost you get a subsidy up to cost. If you want to get a subsidy the service must include all required elements. Item 54. Such services are an excellent tool to increase subscribership, however, they should be a part of the provider's package of services offered by the carrier in response to the customer needs. We suspect that any additional cost of providing this service will be more than offset by additional revenue and/or cost savings such as bad debt reductions. It should need no further support.

Item 55. The GPSC supports the FCC's comments and commends the carrier with the discount plan. The GPSC has "general supervision" over all telecommunication companies. Sometimes it only takes a letter or phone call to them to get them to file such plans. As a general rule, our telephone system operators are civic minded and ready to pitch in to help when the need arises. The impact on subscribership should be positive.

Item 56. The GPSC can handle Ns matter outside the constraints of the Act or O.C.G.A. [[section]] 46- 5-160 et.seq, therefore we have no such detailed analysis. There seems to be a very simple quid pro quo which will make this happen. Reduce the provider's risk of loss from bad debt, and the lower deposit, if any,[8] for that risk should follow. This is an item which we could work out in a cooperative effort. Our staff is currently investigating this matter but the investigation is not complete. Do not include this in a mega-subsidy plan.

Item 57. The GPSC has no special knowledge about this group of individuals and makes no comments or recommendations to the FCC concerning services other than conventional residential services with the following exception. Most if not all wireless services are not subscribed to by a substantial majority of residential customers and, therefore, are not eligible for support from the Universal Service Fund. Such a program or support would be a violation of the Act. See our comments on item 18.

Item 58. The FCC requests comments on the reasons underlying disparity of subscribership shown in footnote 130. The statistics quoted and other statistics indicate that Americans place a great value on their telephones. They also indicate that telephone service (at least the basic line) has a highly inelastic demand. They also indicate that while there is a positive correlation between income and subscribership, subscribership does not follow income closely. According to the statistics quoted, a household with 40% or less of the income of the median household has a telephone subscriber rate of 85.7% of the median income or above households. This is comparing the wealthiest Americans (upper 50% of income levels) with the poorest (poverty level or below). Sometimes we overlook the obvious. How can we expect any other result? With at least $18,000 [9] less income something has to go. Out of every I 00 households of the low- income group, 16 decided that the telephone was one of those things which had to go, while 84 of this same group found a way to include the telephone in the group of services they purchased. Can we improve this record? Yes, we have discussed some ways already. Can we improve this record significantly? Probably not, at least not with a reasonable level of price and subsidies. The "free- rider"[10] problem with this is going to be enormous. For every 100 people targeted for any direct subsidy, there are 84 potential "free-riders" who have already responded to the existing price." With an inelastic service small price changes will not increase subscribership significantly. For any subsidy the maximum additional penetration is 16% with an 84% potential free-ridership. If we assume 100% participation and

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8 A low-cost prepaid plan could be designed to require no deposit.

9 Median income $30,000 Less $12,000 Equals $18,000

10 A free-rider is someone who takes an incentive to purchase an item when he would have purchased the item without the incentive.

100% free-ridership for every $1 00 spent to get the 16 new subscribers we also get 84 free-riders. The net cost per added subscriber would be $6.25 because we spent $100 though only 16 more were induced to subscribe. Private industry can handle this by limiting subsidy to non-subscribers a cost of $1.00 per subscriber added in the simplified example. Private industry can also eliminate unsuccessful programs quickly, and rapidly experiment with packages to find the best one. They have the right to market their services and develop marketing strategies. Governments can't do this. Before we institute a new program which copies old programs, we need to measure the effectiveness of the existing programs. The FCC needs to set reasonable expectations based on hard evidence of achieving results. Some differential will always exist and we need to accept this. This will convert a 16% failure rate to an 84% success rate. The old paradigm was very successful in promoting universal service.

Items 59 to 67. The GPSC is still in the process of evaluating some of these same questions. We have no answers for the FCC.

Item 68. The GPSC concurs with the comments of the FCC.

Item 69. The GPSC collects data to reveal compliance with our service standards. A copy of these rules and a sample compliance report are in the appendix.

Item 70. The GPSC is in the process of establishing a base case under rate-of-retum regulation for certain statistical indices. We have not completed this yet, but we intend to keep the required data goal oriented, impose as fight a burden as possible and make the requirements as easy to comply with as possible. We commend the FCC for establishing a goal of imposing the least possible cost on the companies involved.

Items 71 to I I 1. This covers distance learning and tele-medicine. We have no comments on these items other than please use the same principles we have discussed earlier as you investigate these services. These areas appear to be an excellent place to use competitive bidding very liberally.

Items 112 to 129. The GPSC makes the following comments in response to the FCC NPRM. The GPSC is opposed to any move that the FCC may make to shift cost from the federal jurisdiction to the states. The GPSC is in the process of determining how to shift cost from intrastate access charges to other intrastate telephone services or the UAF. As you can see from O.C.G.A. [[section]] 46-5-160 et.seq the intrastate access charges are benchmarked to the FCC access charges for a five year phase down. Shifting cost to us now will compound the problem and may inadvertently adversely affect universal service. A number of other states are also ad similar issues. Even though basic service is highly inelastic, the GPSC believes that increases should be relatively low and phased in over a period of time to the negative impact on basic service. Since usage sensitive interexchange services tend to be elastic, there is a fine point which balances the need to reduce interexchange rates with the needs of basic local exchange service. The FCC may be wise to observe the states as we try to find that point.

Item 130. Administration of the USF should be decided by the same competitive process we have been advocating consistently in our comments. What is the most cost effective and efficient way to administer the fund should guide the decision. Our state has adopted strategic planning as the best way to effectively and efficiently run state government. As an agency we have been successful and as a state we have been successful. In the 1996 session the Legislature, upon recommendation of the Governor, phased of the state sales tax on food. One source of funds is the reduction of the size of state government. Our Telecommunication Section has 9 people, our Utilities Division has 55 positions (includes 9 Telecommunication positions). It is unlikely we will have any additional staff other than the positions we can fund with redirected funds from our current budget. We are using an evidentiary process to determine eligibility for our UAF, instead of massive command and control rules and procedures. Our or will collect and disburse the funds per the direction of the GPSC. We did not delegate the determination of "who pays" nor "who takes" to the administrator. (See appendix) This is determined annually by the Commission from an evidentiary hearing.

The GPSC has defined a process to determine the operation of the UAF rather than detailed rules and regulations which set forth in great detail how to administer the fund. This will come from the evidentiary hearings and could vary each year to reflect changed circumstances. This approach allows the Commission to get input into the process from all participants and to observe different view points each year. The first round of hearings are currently underway. It keeps the process dynamic and avoids static solutions which will be rapidly outmoded. This process also allows the GPSC to be very efficient in administering the UAF.

The GPSC is already staffed and organized to handle such a scheme and could hear federal claim for USF assistance concurrently with state claims for the UAF at very little additional expense and very little change to our process. We believe that at a minimum, the states should have an advisory role in the administration of the fund.

The FCC could also allow states to administer the fund under a "Matching Funds" concept such as is currently the case for Pipeline Safety and Transportation Safety.

For states who found it impossible to get adequate state positions even with the Federal Funding, the FCC could provide for delegation to an independent administrator, those functions which the states could not handle. The final solution will also be driven by the ultimate design of the USF.

Conclusion

There are also other services which could be a source for support for universal service. While a USF in the form of a direct subsidy is in conflict with competition, competition to provide local access services may increase penetration by putting downward pressure on costs and rates or by changing the way companies recover the cost of access. Unless people subscribe to the network, they cannot purchase high-margin discretionary or enhanced services. As the network becomes used for a wider variety of services, more of the cost of local loop facilities may be recovered from new services and not basic access. A good example is Cellular providers giving potential customers "free" phones. The cost of customer equipment is obviously being subsidized by the cellular local access charge and the usage sensitive charges. Since wireline local access is the linchpin service that makes all the others possible, competition may offer local service "free" or at a very low price. Perhaps the most misapplied and misunderstood principle of economics is that competition will drive price to cost. Competitive markets often force some suppliers to price some goods and services below their individual costs. Some firms are even forced to sell their total package of goods and services below the total cost for that individual firm. In the example cited the CPE cost was priced at "O", well below total allocated cost and even lower than marginal cost. Competition will encourage this type of cross subsidy of services. The FCC should be aware of this phenomenon as it sets federal policy and use it to full advantage to promote universal service.

The USF should be a safety net which "catches those who fall through" a competitive market instead of a blanket which requires a subsidy for every service which is provided and subsidizes every service possible.

The USF should be the exception rather than the rule. Competition should be the rule and not the exception.

The FCC should "reinvent" federal regulation of teleconununications as a decentralized process which relies upon input from the states, industry and consumers. The FCC should avoid unwarranted preemption of state plans and seek to develop a cooperative relationship with the states to get the job done.

The GPSC thanks the FCC for the opportunity to make these conunents and hope they prove useful to you. We look forward to working closely with the FCC to implement the new Act.