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 ) ) ________________________________________
REPLY COMMENTS OF THE
GENERAL SERVICES ADMINISTRATION
EMILY C. HEWITT
General Counsel
VINCENT L. CRIVELLA
Associate General Counsel
Personal Property Division
MICHAEL J. ETTNER
Senior Assistant General Counsel
Personal Property Division
Economic Consultant:
Snavely King Majoros O'Connor & Lee, Inc.
1220 L Street, N.W.
Washington, D.C. 20005
GENERAL SERVICES ADMINISTRATION
18th & F Streets, N.W., Room 4002
Washington, D.C. 20405
May 7, 1996
Table of Contents
Summary i
I. Introduction 1
II. Goals and Principles 3
III. Universal Service Line Rates 4
A. Definition of Universal Service Line Services 4
B. Definition of Study Area 5
C. Universal Service Line Rates 7
IV. Interstate Universal Service Support 8
A. Interstate Subscriber Line Charge 8
B. Interstate Universal Service Fund Distributions 9
C. Interstate Universal Service Fund Contributions 11
D. Competitive Bidding 12
V. Intrastate Universal Service Support 13
VI. Conclusion 15
Summary
In these Reply Comments, GSA responds to the recommendations of over two hundred commenting parties in this proceeding. GSA agrees with the many parties who recommend that the Commission implement its universal service policies according to the principles of competitive neutrality, minimal regulatory burden and economic efficiency.
While GSA advises caution in expanding upon the list of core USL services, GSA agrees with those parties who support the inclusion of interexchange access or toll blocking. GSA also agrees with the many parties who would allow study areas to be defined as no smaller than wire centers.
GSA endorses the establishment of regional minimum and maximum rural rates by the Commission based upon urban rates. GSA strongly supports the recovery of loop plant costs through the SLC, and opposes the position of some parties that the SLC not be increased.
GSA agrees with most parties that actual costs, not proxy factors, be used as the basis for USF distributions. GSA also agrees with those parties that support the funding of the USF by contributions from all carriers based upon their proportionate share of all interstate revenues net of payments to other carriers.
Finally, GSA agrees with the many parties supporting the implementation of competitive bidding by the state commissions, along with state SLCs and USFs which complement the Commission's universal service program.
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 )
)
________________________________
REPLY COMMENTS OF THE
GENERAL SERVICES ADMINISTRATION
The General Services Administration ("GSA"), on behalf of the Federal Executive Agencies, submits these Reply Comments in response to the Commission's Notice of Proposed Rulemaking ("NPRM"), FCC 96-45, released March 8, 1996. In this NPRM, the Commission requested comments and replies on the implementation, in part, of the Congressional directives set out in Section 254 of the Communications Act of 1934, as added by the Telecommunications Act of 1996 ("1996 Act").[1]
On April 12, 1996, GSA filed Comments in this proceeding proposing a competitively neutral universal service plan that would satisfy the requirements of the 1996 Act without seriously undermining economic efficiency in the telecommunications market. Under GSA's universal service plan, the Commission would establish minimum and maximum universal service line ("USL") rates for rural residential subscribers to ensure that their rates are reasonably comparable to urban residential rates.[2] Interstate common line costs for business and urban residential subscribers would be fully recovered through flat-rated Subscriber Line Charges ("SLCs").[3] Interstate common line costs for rural residential subscribers would be explicitly subsidized by an interstate Universal Service Fund ("USF").[4] All interstate carriers would be required to contribute to the interstate USF in proportion to their share of total interstate revenues net of interstate payments to other carriers.[5] State commissions would be encouraged to establish intrastate SLCs and USFs similar to those established by the Commission, but based upon intrastate revenues and costs.[6]
More than 200 other parties also filed comments in this proceeding, including:
- The United States Telephone Association ("USTA") and over 50 individual local exchange carriers ("LECs") and LEC representatives;
- The National Association of Regulatory Utility Commissioners ("NARUC") and virtually all state commissions;
- Over 30 end users, consumer advocates, and other user representatives;
- Over 60 individuals and organizations concerned with schools, health care and libraries;
- The Competitive Telecommunications Association ("CompTel") and 10 individual interexchange carriers ("IXCs") and IXC representatives;
- The Cellular Telecommunications Industry Association ("CTIA") and eight individual commercial mobile radio service ("CMRS") parties;
- The National Cable Television Association, Inc. ("NCTA") and four individual cable parties; and
- The Association for Local Telecommunications Services ("ALTS") and two individual competitive access providers ("CAPs").
In these Reply Comments GSA responds to the comments and recommendations of this broad cross-section of interested parties.
II. Goals and Principles
In its Comments, GSA supported the Commission's proposal to develop its universal service rules in a manner which ensures competitive neutrality and minimizes regulatory burden.[7] These objectives were widely supported in the comments of other parties.[8]
GSA also proposed that the Commission include economic efficiency as a fundamental principle in its universal service implementation efforts. The Citizens for a Sound Economy Foundation ("CSE Foundation") supports this proposal, and states:
While not glamorous from a policy perspective, economic efficiency is necessary for the long-run competitiveness of the industry, which in turn impacts both the price and quality of the goods and services available to consumers in the future.[9]
The promotion of economic efficiency was explicitly incorporated as a design principle by the Oregon Public Utility Commission ("OPUC"). The Commission should afford it similar attention.[10]
III. Universal Service Line Rates
A. Definition of Universal Service Line Services
In its Comments, GSA recommended that the Commission exercise extreme caution in expanding upon the list of core USL services, since each additional service will increase the subsidy burden on telephone ratepayers.[11] GSA did recommend, however, that interexchange access, or the blocking of toll calls, be included as a core service option.[12] As GSA explained, for most subscribers the availability of interexchange access is perceived as an absolute necessity. For some subscribers, however, the availability of toll blocking is even more important, since it provides a measure of control over their telephone bill.
There was widespread support for GSA's proposal to include interexchange access or toll blocking as a core USL service.[13] The Missouri Public Service Commission ("MoPSC") states:
Studies suggest that a large share of people currently lacking phone service were disconnected due to unpaid toll bills. Toll blocking might permit such people to regain telephone service, enabling them to make and receive local calls, and to receive toll calls. It might also help new telephone subscribers avoid such problems. Various Missouri LECs advise the MoPSC that the recurring cost of providing either service from a digital switch is less than $.02 per access line per month. By subsidizing toll blocking, the FCC would enhance subscribership.[14]
It would be ironic, indeed, if the Commission failed to include toll blocking, a proven method of increasing telephone penetration, in its universal service program.
B. Definition of Study Area
In its Comments, GSA recommended that the LECs be required to identify their service areas as either urban or rural, and that they be permitted to organize them into study areas as large as a state or as small as a wire center.[15] A large LEC might, for example, establish one study area consisting of all of its urban wire centers in a state, and a second study area consisting of all of its rural wire centers in the state.
Some commenting parties advocate study areas as small as Census Block Groups ("CBGs"), which consist of about 400 households.[16] The USTA suggests that study areas be no larger than a wire center,[17] while many parties agree with GSA that study areas should be no smaller than a wire center.[18] Ameritech notes that "the wire center is the basis upon which network costs are incurred."[19] Citizens Utilities Company ("Citizens") states the case for wire centers well:
The Citizens Companies do not believe, however, that disaggregation down to census block groups is an appropriate methodology. Existing local exchange carrier ("LEC") networks do not conform to census blocks. Instead, LEC networks and cost data are generally based upon network units no smaller than wire centers and often as large as exchange areas. These network units are well known and sufficiently small in size to represent reasonably homogeneous cost characteristics. The Citizens Companies' LECs, which operate in suburban and rural exchange areas, cannot readily adapt the use of census blocks for cost disaggregation without incurring potentially vast expenses. Accordingly, disaggregation of costs within a study area or study area redefinitions should contemplate network units no smaller than wire centers. The use of exchanges or wire centers would be appropriate.[20]
GSA believes that the identification of study areas below the wire center level would place an unreasonable regulatory burden on the industry for no good purpose. The Commission should specify that study areas will be no smaller than wire centers.
C. Universal Service Line Rates
In its Comments, GSA recommended that the Commission establish minimum and maximum rural USL rates for each region of the nation based upon the region's average urban rates.[21] To avoid distortions caused by outliers, GSA proposed that the minimum rural USL rate be the average USL rate paid by the 10 percent of urban residential customers in each region having the lowest USL rates. The maximum rural USL rate would be the average USL rate paid by the 10 percent of urban residential customers in each region having the highest USL rates.
NCTA proposed that the urban rates used for comparison be "the rates in the nearest urban area (or two areas)."[22] Although NCTA's proposal sounds simple, in practice it would be administratively complex and controversial because parties would disagree as to which areas should be used as a benchmark. Since the 1996 Act specifically states that rural rates should be reasonably comparable to urban rates "in all regions of the Nation,"[23] GSA continues to recommend that the Commission establish minimum and maximum permitted rural USL rates by region.
IV. Interstate Universal Service Support
A. Interstate Subscriber Line Charge
In its Comments, GSA recommended that the Commission set the interstate residential SLC at one-twelfth of 25 percent of the national average annual urban unseparated loop cost.[24] The interstate business SLC would be billed by each carrier at a level designed to recover all interstate business loop costs.[25] Conceptually, therefore, all urban interstate loop costs would be recovered through interstate SLCs in an economically efficient manner.
Some consumer advocates and state commissions oppose any increase to the interstate residential SLC, which is now capped at $3.50.[26] These parties suggest that an increase in the SLC will have an adverse effect on subscribership.
As a number of parties point out, however, such concerns have been shown to be completely unfounded.[27] Southwestern Bell Telephone Company ("SWBT") states:
Increasing the SLC in the manner proposed will not harm subscribership. Past increases in the SLC did not harm subscribership; telephone subscribership increased from 91.6 percent when the SLC was implemented in 1984, to 93.1 percent when the SLCs were capped in 1989. Econometric estimates indicate such rate balancing if accompanied by toll decreases will not cause subscribers to disconnect. Studies show that toll usage costs are responsible for customers dropping off the network, not monthly charges. Rate rebalancing could well improve subscribership.[28]
Bell Atlantic agrees, and adds:
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.[29]
Commissioner Quello recognized the need for economic efficiency in the recovery of loop costs in 1994 when he stated:
We cannot hold basic economic reality at bay forever. When costs that are not traffic sensitive - such as local loop plant - are recovered through usage-based rates, the high usage, high margin customers are ripe for cream-skimming. So the Commission needs to get on with the business of removing some subsidies, and reforming and reducing access prices by assigning and recovering costs more appropriately.[30]
GSA agrees with Commissioner Quello. Now is the time, and this is the proceeding, for the Commission to enhance economic efficiency in the recovery of interstate loop plant.
B. Interstate Universal Service Fund Distributions
In its Comments, GSA proposed that a USL provider would be eligible to withdraw 90 percent of its interstate residential costs per loop for study areas that are between 115 and 150 percent of the interstate residential SLC, and 100 percent of its interstate residential costs per loop in excess of 150 percent.[31]
Some parties recommend that interstate USF distributions be based upon a theoretical "proxy" calculation instead of actual costs.[32] Such a method was strongly opposed by a wide variety of parties.[33] SWBT states:
SWBT has analyzed the Benchmark Costing Model (BCM) and is convinced that it does not provide a reasonable comparison to actual costs by study area (company) or by wire center....Adopting a demonstrably inaccurate proxy model to address the assumed unwillingness of new entrants to offer consistent, uniform, accurate, and actual data comparable to that supplied by an incumbent LEC is simply wrong. To be competitively neutral in its treatment of incumbents and new entrants, the Commission should not adopt an inaccurate, and unrepresentative benchmark cost model....[34]
John Staurulakis, Inc. ("JSI"), a consultant to over 150 independent LECs, states:
Despite the Commission's apparent mistrust of local exchange carrier's reported costs, JSI cannot conceive of any better alternative for determining and directing universal service support than on the basis of factual data of study area costs. It is folly to think that the use of surrogate factors purported to measure cost differentials and the need for support in rural, insular and high cost areas can possibly work with any measure of success in a system of service providers as diverse and complex as that of the telecommunications industry. In addition, the immense difficulty, cost, and confusion of devising, implementing, and administering a mechanism of proxy factors or a competitive bidding process completely overshadow any possible benefit associated with such mechanisms.[35]
GSA agrees with those parties opposing proxy methodologies. No set of proxy factors can adequately predict the costs necessary to serve specific areas. Inevitably, some high-cost areas would not be served because the proxy factors indicate that no subsidy is warranted, even though carriers find them too costly to serve. Conversely, subsidies would be doled out to areas which are not costly to serve simply because the proxy factors mistakenly indicate they should be subsidized.
GSA urges the Commission to reject the proxy approach and continue to base universal service subsidies on actual costs.
C. Interstate Universal Service Fund Contributions
In its Comments, GSA recommended that the interstate USF be funded by contributions from all interstate carriers based upon their proportionable share of all interstate revenues net of payments to other carriers.[36] There was widespread support for this approach expressed by commenting IXCs, users and state commissions.[37]
A number of large LECs proposed instead that the USF be funded by a surcharge on retail sales to end users.[38] Under this proposal, there would be no surcharge on LEC access charges, and the USF would be funded almost entirely by IXC contributions.
The Commission should reject this LEC proposal as directly contrary to the 1996 Act, which states:
Every telecommunications carrier that provides interstate telecommunications services shall contribute, on an equitable and nondiscriminatory basis, to the specific, predictable, and sufficient mechanisms established by the Commission to preserve and advance universal service.[39]
The LECs' proposal to shift the entire burden of USF subsidies to the IXCs is obviously and simply unlawful.
D. Competitive Bidding
In its Comments, GSA supported the concept of a competitive bidding process to set the level of subsidies required in rural, insular, and high cost areas, but recommended that the Commission defer to the state commissions for its implementation.[40]
Some LECs opposed the concept of competitive bidding.[41] SWBT "does not believe that competitive bidding is necessary, appropriate, or warranted for high-cost support determination."[42] GTE, on the other hand, believes "bidding would provide a far better, and market-based, approach for determining the amount of support.[43]
Competitive bidding received strong support, however, from LEC competitors.[44] As they point out, competitive bidding will ensure that all areas are served at the minimum subsidy necessary in the most economically efficient manner possible. On balance, GSA believes that the Commission should approve the concept of competitive bidding, but leave its implementation in the hands of the individual state commissions.
V. Intrastate Universal Service Support
In its Comments, GSA recommended that the state commissions consider the adoption of intrastate SLCs and USFs in a manner similar to that adopted by the Commission, but based upon intrastate USL revenues and costs.[45]
NARUC agrees that Federal and state policy makers must take a coordinated and comprehensive approach. NARUC states:
Protecting the Nation's long-standing commitment to universal access to affordable basic services during the transition to competition is one of the most critical challenges facing federal and state regulators. To meet that challenge, the States and the FCC must continue to take a coordinated approach to US issues.[46]
Once the Commission's universal plan is in place, the state commissions can implement their own plans to meet the unique needs of the individual states.
As the agency vested with the responsibility for acquiring telecommunications services on a competitive basis for use of the Federal Executive Agencies, GSA urges the Commission to implement the Congressional directive set forth in Section 254 of the 1996 Act in the manner described in these Reply Comments.
Respectfully submitted,
EMILY C. HEWITT
General Counsel
VINCENT L. CRIVELLA
Associate General Counsel
Personal Property Division
MICHAEL J. ETTNER
Senior Assistant General Counsel
Personal Property Division
GENERAL SERVICES ADMINISTRATION
18th & F Streets, N.W., Rm. 4002
Washington, D.C. 20405
(202) 501-1156
May 7, 1996
CERTIFICATE OF SERVICE
I , do hereby certify that copies of the foregoing "Reply Comments of the General Services Administration" were served this 7th day of May, 1996, by hand delivery or postage paid to the following parties:
[Service list deleted from online version.]