Before the
FEDERAL COMMUNICATIONS COMMISSION
Washington, D.C. 20554
In the Matter of ) ) Federal-State Joint ) CC Docket No. 96-45 Board on Universal Service )
FURTHER COMMENTS OF THE
COMMONWEALTH OF THE NORTHERN MARIANA ISLANDS
Dave Ecret Thomas K. Crowe Special Assistant to the Governor Michael B. Adams, Jr. for Telecommunications and Utilities LAW OFFICES OF THOMAS K. CROWE, P.C. OFFICE OF THE GOVERNOR 2300 M Street, N.W. Commonwealth of the Northern Suite 800 Mariana Islands Washington, D.C. 20037 Saipan, MP/USA 96950 (202) 973-2890 COUNSEL FOR THE COMMONWEALTH OF THE NORTHERN MARIANA ISLANDS
August 2, 1996
TABLE OF CONTENTS Page Summary of Comments . . . . . . . . . . ii I. INTRODUCTION . . . . . . . . . . 1 II. RESPONSES TO QUESTIONS . . . . . . . 4 Question 1 . . . . . . . . . . . . . . 4 Question 3 . . . . . . . . . . . . . . 6 Question 19 . . . . . . . . . . . . . . 8 Question 34 . . . . . . . . . . . . . . 9 Question 40 . . . . . . . . . . . . . 10 Question 41 . . . . . . . . . . . . . 10
SUMMARY OF COMMENTS
As the Commonwealth of the Northern Mariana Islands ("Commonwealth") details in its responses to the Commission's supplementary questions, the Commission must adopt a universal service mechanism that is both non-discriminatory and effective in achieving telecommunications rates that consumers in insular, high cost and low income areas such as the Commonwealth may afford.
In its response to Question 1, the Commonwealth demonstrates that the Commission cannot assume that the rates charged to customers under the existing universal service system are "affordable." The extremely high prices charged for telecommunications services in the Commonwealth, combined with the Commonwealth's low per capita income, produces rates which are much too expensive for many of the Commonwealth's residents. Replicating the current levels of support is therefore inadequate, since the Telecommunications Act of 1996 ("1996 Act") requires the Commission to take affirmative steps to make telecommunications services affordable in insular, high cost and low income areas such as the Commonwealth.
The Commonwealth answers Question 3 by stressing that the Benchmark Cost System is discriminatory as it is currently written since it does not include Alaska, the Commonwealth or the other U.S. Pacific Territories in its modeling. On the other hand, the Commonwealth also cautions the Commission against continuing the current cost support mechanisms without significant modifications since this system may waste scarce resources by overcompensating incumbent local exchange companies.
In response to Question 19, the Commonwealth shows that schools and libraries in rural, insular or economically disadvantaged areas must receive an extra level of universal service support to ensure that telecommunications services are affordable for these institutions. Such support is especially important if the schools and libraries in the Commonwealth are to keep pace with the patterns of telecommunications use that are currently developing in urban areas of the U.S.
The Commonwealth answers Question 34 by reiterating its residents' need for universal service support for toll-free access to 800 services and access to on-line information services. Such services are currently subject to the Commonwealth's extremely high long distance calling rates, and their use is presently prohibitively expensive. Without universal service support, consumers in the Commonwealth will not be able to afford the use of 800 numbers or on-line services to anything approaching the levels enjoyed in urban areas of the U.S.
Regarding Question 40, the Commonwealth shows that any proxy system adopted by the Commission must not only include the Commonwealth in its modeling but must also be effective in addressing the Commonwealth's combination of high rates and low consumer incomes.
Lastly, the Commonwealth is critical of the premise underlying Question 41. Any proxy system that the Commission adopts must include insular areas such as the Commonwealth.
Before the
FEDERAL COMMUNICATIONS COMMISSION
Washington, D.C. 20554
In the Matter of ) ) Federal-State Joint ) CC Docket No. 96-45 Board on Universal Service )
FURTHER COMMENTS OF THE
COMMONWEALTH OF THE NORTHERN MARIANA ISLANDS
The Commonwealth of the Northern Mariana Islands ("Commonwealth"),[1] by its attorneys, respectfully submits the following comments in response to the Commission's Public Notice requesting further comments on specific questions in the above-captioned matter.[2]
I. INTRODUCTION
On April 12, 1996, the Commonwealth filed initial Comments in this proceeding addressing universal service issues raised in the Commission's Notice of Proposed Rulemaking.[3] A brief review of the Commonwealth's position is instructive.[4]
In its Comments, the Commonwealth demonstrated that, as a U.S. point located 3,300 miles west of Hawaii, it clearly qualifies as an insular area under Section 254 of the Telecommunications Act of 1996 ("1996 Act").[5] The Commonwealth also demonstrated that its inordinately high telecommunications rates (which are as much as five times higher than calls in the highest rate-integrated rateband)[6] and its low average per-capita income (which was a mere $7,581 in 1991)[7] additionally qualified it as both a high cost and a low income area. The net effect of the Commonwealth's low income and high rates is that telecommunications services are not affordable for most residents, as seen in the Commonwealth's very low subscribership level.[8] The Commonwealth supported the Commission's conclusion that the "core" of services that would receive universal service support should include voice grade network access, touch tone dialing, single party service, emergency services, and access to operator services.[9] The Commonwealth also argued that in order for reasonable service parity to exist with urban areas, the Commonwealth must receive universal service support for toll-free access to 800 services and for the use of on-line information services.[10]
The Commonwealth urged the Commission to determine "affordability" from the perspective of consumers by considering both income levels and relative telecommunications costs when calculating the level of support.[11] The Commonwealth argued that both residential and commercial users in the Commonwealth should be considered "consumers" and should both receive universal service support, lest commercial rates remain disproportionately high.[12] Lastly, the Commonwealth advocated the need for universal service subsidies to be calculated in a manner that neither excluded the Commonwealth or underallocated the support necessary to fulfill the 1996 Act's objectives.[13]
With these general concepts in mind, the Commonwealth responds to the specific questions enumerated in the Commission's Public Notice.
II. RESPONSES TO QUESTIONS
Question 1: Is it appropriate to assume that current rates for services included within the definition of universal service are affordable, despite variations among companies and service areas?
Under no circumstances should the Commission make an unqualified conclusion that the rates currently charged for telecommunications services are "affordable" in all parts of the United States. The new universal service mechanism cannot perpetuate the current price discrepancies without violating the intent of Congress and the letter of the 1996 Act.
The Commonwealth has been poorly served by the existing system and it therefore offers itself as a cautionary example. As one of only three U.S. points that have never enjoyed rate integration,[14] the Commonwealth currently has among the highest telecommunications rates in the nation.[15] Calls made from the Commonwealth to other U.S. points presently cost as much as five times more than calls made within the highest rate-integrated rateband.[16] As a result, Commonwealth residents are deprived of certain telecommunications services available to other Americans -- such as toll-free calling -- and pay extemely high prices for those services that are available.[17] Coupled with the Commonwealth's low per-capita income, which is less than half that of persons on the mainland,[18] these extreme rates have severely depressed usage and subscribership levels.[19]
The great expense of using telecommunications services in the Commonwealth has had negative social and economic effects and adversely affected its integration with the rest of the nation. Without the benefit of decisive universal service support from the Commission, it is clear that the Commonwealth's consumers will remain isolated, underserved and overcharged for telecommunications services.
The combination of high rates, low income and depressed subscribership extant in the Commonwealth is therefore precisely the sort of problem that the universal service requirements adopted by the 1996 Act are intended to resolve.[20] Congress did not use "affordable" to be understood other than in its common meaning, and clearly intended that the Commission rebalance or expand the amount of support given to high cost or low income areas in order to benefit consumers. Section 254(b)(1)'s requirement that "quality services be available at just, reasonable and affordable prices" therefore requires that the FCC act aggressively to assure that the Commonwealth's residents can afford to use a level of telecommunications services similar to urban and developed areas of the nation.
While it will be difficult, and while the majority of the voices speaking on this subject will be from the telecommunications industry, the Commission must continue to focus upon the interests of consumers. As the Commission correctly concluded in its Notice, "our goal should be to ensure that consumers in 'all regions of the nation' [footnote omitted] and at all income levels, including low income consumers, enjoy affordable access to the range of services available to urban consumers generally."[21] Any turning back from these goals and any failure by the Commission to correct the gross inequalities and affordability problems that rural, insular, high cost or economically disadvantaged areas such as the Commonwealth will violate both the intent and letter of the 1996 Act.
Furthermore, when crafting this new system the Commission should look to specifically remedy both the Commonwealth's and the other Pacific Territories' unique disadvantages and past exclusion from the full benefits of universal service. To address its history of differential and unfavorable treatment, the Commission should strongly consider providing the Commonwealth with a system of universal service support that is higher than that enjoyed in mainland areas. Additional support, whether long or short term, is wholly justified as remedy for the Commonwealth's low subscription rate. Such additional support would cause the Commonwealth's subscription rates to rise more quickly and would clearly serve to reverse its residents' low usage of telecommunications.
Question 3: When making the "affordability" determination required by Section 254(i) of the Act, what are the advantages and disadvantages of using a special national benchmark rate for core services in a proxy model?
The Commonwealth is skeptical that any of the proxy models proposed to date can make fair determinations of what "affordable" rates would be for the Commonwealth's residents. In particular, the Commonwealth wishes to point out that the Benchmark Cost Model ("Model") developed by MCI Telecommunications Corporation, The NYNEX Telephone Companies, Sprint Corporation and U S West Inc. ("Joint Sponsors") does not include either Alaska, the Commonwealth, or the other U.S. Pacific Territories.[22] Unless these exclusions are not corrected, the Commission's adoption of this proxy system would be discriminatory, violating the 1996 Act's requirement that the U.S. Pacific Territories receive treatment equal to that of any other mainland rural, remote, or insular area.
On the other hand, the Commonwealth also believes that the Commission should not continue the existing system of cost supports, including as an interim measure, unless it is significantly modified. As the Commission itself has concluded, the reported costs of incumbent LECs are a poor measure of identifying need for universal service support due to the perverse incentives it provides LECs to inflate their costs or, in the worst case, to gain competitive leverage by using surplus payments for cross subsidization.[23] Overcompensated LECs are a peril to development of competitive markets, and such overcompensation would also be a waste of scarce universal service funds. Without reference to the true economic costs of providing services to an area, universal service will simply support, preserve or enhance LECs' current revenue streams.
The Commonwealth therefore believes that a support system that achieves specific end user prices, with or without the aid of a benchmarking model, is the best means of providing affordable rates for telecommunications services.
Question 19: Should an additional discount be given to schools and libraries located in rural, insular, high-cost and economically disadvantages areas? What percentage of telecommunications services (e.g., Internet services) used by schools and libraries in such areas are or require (sic) toll calls?
Schools and libraries located in rural or insular areas and in economically disadvantaged areas must receive an extra measure of support to ensure that telecommunications services are priced within the user's ability to pay. Just as the level of universal support for residential and business telecommunications services should be determined from the perspective of consumers, the Commission must consider both the average income and the telecommunications costs of serving such areas.
As an insular area with both high costs of service and low per capita income, the Commonwealth's schools and libraries face the same problems in affording telecommunications services as other consumers. These affordability problems will grow more acute if the Commonwealth's schools and libraries attempt to keep pace with the burgeoning use of advanced telecommunications services such as the Internet. Since such calls almost always require calls to the mainland U.S. or overseas locations, increased use will be prohibitively expensive and will cut into the schools' and libraries' limited budgets without universal service support. In addition, even if the Commission decides to provide all of the Commonwealth's consumers with universal service support for on-line information services, as the Commonwealth argued for in its previous Comments,[24] extra support will still be needed so that the Commonwealth's schools and libraries will be able to surmount their especially disadvantageous location and reliance on long-distance services.
Question 34: What, if any, programs (in addition to those aimed at high-cost areas) are needed to ensure that insular areas have affordable telecommunications service?
The ultimate success of any universal service support program aimed at making telecommunications services "affordable" in insular areas depends upon whether it addresses actual consumer needs. As the Commonwealth noted in its previous Comments, in order for its consumers to have reasonable service parity with other parts of the U.S., insular areas such as the Commonwealth must receive universal service support for toll-free access to 800 services and for the use of on-line information services (including Internet access). Most calls to 800 numbers from the Commonwealth are not toll-free to the customer since the customer must pay for the international connection to the 800 number,[25] which is sufficiently expensive that the "toll free" calls are nearly the same price as standard long-distance calls. Commonwealth residents face a similar problem in using information services, since they must pay expensive international calling rates to access the Internet in locations in the contiguous U.S. and most other information services (in addition to standard subscribership and usage fees). Such on-line information service connection charges are relatively inexpensive -- or, in some cases, free -- to consumers in non-insular areas, and toll-free calls are almost always provided at no cost to their users. In order to establish reasonable parity with the rest of the U.S., it is therefore necessary, at a minimum, that the Commission address the Commonwealth's unique problems and provide its consumers with additional universal service support for these two services.
Question 40: If a proxy model is used, what, if any, measures are necessary to assure that urban rates and rates in rural, insular, and high-cost areas are reasonably comparable, as required in Section 254(b)(3) of the 1996 Act?
As noted above in the Commonwealth's response to Question 3, supra, any proxy model that the Commission adopts must not exclude the Commonwealth or the other U.S. Pacific Territories from its factoring. Any model that fails to do this will, in addition to producing inaccurate results, be discriminatory.
A proxy model must have a means of addressing low per-capita income and disproportionate service costs, either within its factoring or through adjustments that are made to its calculations. If the results produced by any proxy or benchmark are unsatisfactory, additional support will be necessary in order to fulfill the 1996 Act's mandate that telecommunications services provided to such areas be affordable.
Question 41: How should support be calculated for those areas (e.g., insular areas and Alaska) that are not included under the proxy model?
This question reveals a faulty premise by the Commission. Any proxy model adopted by the Commission should, to the extent possible, include the Commonwealth and other insular areas or else it will be, by definition, discriminatory. While it is important that the Commission find a means for making telecommunications services affordable in insular areas, it is of key importance that the mechanism achieving this end not be separate or different from the national system. As the Commonwealth is only too aware, any separation from the programs that benefit the majority of the U.S. is too often an invitation to unequal and discriminatory treatment.
As noted above, the Joint Model currently does not include rural or insular areas and is therefore unacceptable in its current form. The Commission should not adopt such a model until its sponsors are able to demonstrate that it includes (rather than excludes) insular areas and that it produces realistic, fair and beneficial levels of support for those consumers in need.
Respectfully submitted,
____________________________
Dave Ecret Thomas K. Crowe Special Assistant to the Governor Michael B. Adams, Jr. for Telecommunications and Utilities LAW OFFICES OF THOMAS K. CROWE, P.C. OFFICE OF THE GOVERNOR 2300 M Street, N.W. Commonwealth of the Northern Suite 800 Mariana Islands Washington, D.C. 20037 Saipan, MP/USA 96950 (202) 973-2890 COUNSEL FOR THE COMMONWEALTH OF THE NORTHERN MARIANA ISLANDS
August 2, 1996