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

JOINT REPLY COMMENTS OF
THE INFORMATION TECHNOLOGY ASSOCIATION OF AMERICA
THE ELECTRONIC MESSAGING ASSOCIATION
THE INFORMATION TECHNOLOGY INDUSTRY COUNCIL
THE INFORMATION INDUSTRY ASSOCIATION
THE NATIONAL RETAIL FEDERATION

Joseph P. Markoski
James M. Fink
Squire, Sanders & Dempsey
1201 Pennsylvania Avenue, N.W.
Post Office Box 407
Washington, D.C. 20044
(202) 626-6600

May 7, 1996

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		)

JOINT REPLY COMMENTS OF
THE INFORMATION TECHNOLOGY ASSOCIATION OF AMERICA
THE ELECTRONIC MESSAGING ASSOCIATION
THE INFORMATION TECHNOLOGY INDUSTRY COUNCIL
THE INFORMATION INDUSTRY ASSOCIATION
THE NATIONAL RETAIL FEDERATION

The Information Technology Association of America ("ITAA"), the Electronic Messaging Association ("EMA"), the Information Technology Industry Council ("ITI"), the Information Industry Association ("IIA"), and the National Retail Federation ("NRF") (collectively, the "Joint Commenters") hereby reply to the comments that were filed in response to the Commission's Notice of Proposed Rulemaking and Order Establishing Joint Board ("Notice") in the above-captioned proceeding on April 12, 1996.[1]

I. INTRODUCTION

ITAA and EMA, in their initial joint comments, and ITI, IIA and NRF, in their separately submitted initial comments, all endorsed the Commission's tentative conclusion that the concept of universal service should be limited to voice grade access, touch tone service, and single-party service, as well as access to 911 and operator services. The Joint Commenters cautioned that the list of "core" services qualifying for universal service support should not be enlarged to include other basic telecommunications services absent some compelling public interest showing. The Joint Commenters also explained why the definition of universal service should not, under any circumstances, be expanded to include unregulated enhanced (information) services.[2]

In addition, the Joint Commenters urged the Commission to: (1) implement fully the requirement of the Telecommunications Act of 1996 ("1996 Act") that universal service subsidies be made "explicit" by eliminating all such subsidies from interstate access charges; (2) devise a new universal support mechanism that collects subsidies on an equitable and nondiscriminatory basis from all telecommunications common carriers; (3) either not require Section 254 universal service contributions from "other provider[s] of telecommunications" or limit such contribution to facilities-based providers; (4) make clear that purely private networks are not required to make universal service contributions pursuant to Section 254; and (5) appoint a single, non-governmental entity to administer the collection and distribution of universal service support payments.

Upon review of the comments filed by other parties, ITAA, EMA, ITI, IIA and NRF have decided to file joint reply comments. Their purpose in doing so is to impress upon the Commission the shared views of the Nation's principal providers and users of information services with respect to the universal service issues raised by the Notice. (They are also mindful of the Commission's admonition that parties with like interests file jointly.) Collectively, the Joint Commenters represent more than 13,000 companies. Together, they spend hundreds of millions of dollars each year on basic telecommunications services and are thus major contributors to the support of universal service.

As set forth below, the record of this proceeding overwhelmingly supports the Commission's tentative conclusion to limit universal service to a core group of basic telecommunications services. The Commission should reject the suggestions advanced by some to expand universal service to include other basic services. The Commission should also reject out of hand any suggestion that universal service be expanded to include unregulated information services.

The record also makes clear that only telecommunications carriers should be required to contribute to the support of universal service pursuant to Section 254 of the Act. Unregulated enhanced service providers, operators of private networks, and non-carrier providers of interstate telecommunications should not be required to support universal service other than through the payments they make to telecommunications carriers. The majority of commenters also agree that all subsidies should be removed from interstate access charges and that a single, non-governmental entity should be designated to administer universal service support programs.

II. THE RECORD SUPPORTS LIMITING THE DEFINITION OF UNIVERSAL SERVICE TO THE CORE SERVICES IDENTIFIED BY THE NOTICE, WITH THE POSSIBLE ADDITION OF DIRECTORY ASSISTANCE, WHITE PAGE LISTINGS, AND EQUAL ACCESS TO INTEREXCHANGE CARRIERS

Most of the major industry players participating in this proceeding, as well as most state public utilities commissions, agree that universal service should be confined to a limited number of "telecommunications services."[3] Although some of these parties have proposed modest additions to the Commission's five "core" services (e.g., directory assistance, white page listings, and equal access to interexchange carriers), none has recommended the inclusion of non-telecommunications services such as enhanced services. Even the National Association of State Utility Consumer Advocates ("NASUCA"), a sophisticated public interest organization, endorses the Commission's core list of services, with the addition of white page listings, directory assistance, and equal access to interexchange carriers.[4]

None of the commenting parties seriously disputes that the five "core" services identified by the Notice are more than adequate to ensure that all Americans are capable of fully participating in the Information Age. In this regard, Sprint correctly notes that there is no sound public policy justification for expanding the definition of universal service to include other basic services to which even many businesses do not subscribe:

It is critical that only services that a majority of consumers have subscribed to be funded because ultimately it is the consumer that funds the subsidy. If services are supported that a majority of consumers have not subscribed to, then consumers in high cost areas receive subsidies for services that are unwanted by the majority of consumers, the very group that ultimately funds the subsidy. Such a result is unwarranted and contrary to the idea of lessened regulatory burdens and increased competition with its associated freedom of choice.[5]

The Commission should therefore reject calls to include such telecommunications services as ISDN,[6] high-speed T1 lines, frame relay, asynchronous transfer mode ("ATM"), and similar telecommunications services within the definition of universal service.[7] Plainly, these services do not meet the requirement of Section 254(c)(1)(B) that a service be "subscribed to by a substantial majority of residential customers" before it can be included in the definition of universal service.

The 1996 Act and its legislative history make quite clear that Congress intended to "exclude[] those services, such as interactive games or shopping services and other services involving interaction with stored information, that are defined as information services"[11] from the definition of "telecommunications" and "telecommunications service." "Information services" are therefore not "telecommunications services" within the meaning of the Act. As a consequence, the Commission need not consider whether specific information services should be included within the definition of universal service. The 1996 Act does not authorize the Commission to define universal service so as to include information services.

One information service, however, does merit discussion. In their comments, a number of parties have recognized the distinction between providing information services themselves and providing "access" to such services.[12] As the Commission appears to have recognized, access to information services can be achieved using voice grade lines and touch tone service, two of the core services identified by the Notice as elements of universal service. There is, however, another form of access, i.e., Internet access, which is itself an information service. Because there is no commonly understood or broadly accepted definition of Internet access, it has created some confusion in the comments. Thus, for example, commenters such as the Alaska Public Utilities Commission, Pacific Telesis, and US WEST suggest that Internet access can be provided, without more, through local dial-up access or high-speed data lines.[13] Simply stated, these commenters are mistaken. Internet access, as used by the on-line information services community, has a far different meaning.

As the Interactive Services Association has explained in its comments, Internet access includes protocol conversion and information storage, both of which are unregulated enhanced services within the meaning of the Commission's rules:

Internet access service is not a telecommunications service . . . that permits transmission of information of the user's choosing . . . . Instead, companies providing Internet access service provide their subscribers with computer storage capacity and Internet communications protocols, which can be thought of as a kind of information that only computers can understand and use. . . . Nor is the information provided by an Internet access provider offered between points of the user's choosing. Just as with online service, Internet access service operates on a client-server model. The user may choose the client end of the communications path but has no choice about the server end. . . . Finally, transmissions between the user and the Internet service provider are not such that the form or content of the information is unchanged. Information on the Internet is stored in as many different formats as there are kinds of computers. Exchanging text files between all these different computers requires conversion into different forms. Thus, the "ftp" program -- the basic method of moving file-structured information over the Internet -- must perform end-to-end conversion of text files between client and server.[14]

The Commission should therefore reject the comments of Kinko's and others that Internet access be made part of universal service.[15] In addition to being an information service, Internet access does not satisfy the criteria set forth in Section 254(c)(1) to be included in universal service.[16] Moreover, Kinko's proposal to use universal service funds to provide consumers with Internet vouchers -- to be paid to companies such as Kinko's -- would improperly subsidize not only Internet access, but also Internet subscription services and CPE such as computers, modems and printers.[17] The 1996 Act plainly does not contemplate such grandiose schemes.

The Joint Commenters, however, are not insensitive to the needs of schools, libraries, and other segments of the public for information services. To the extent that there is a demand for these services, the Joint Commenters agree with Apple Computer and Netscape that a competitive marketplace will be the best vehicle to ensure their low-cost and widespread availability. For example, Apple, through its Apple Classrooms of Tomorrow technology research group, has voluntarily provided schools with computers and other high-tech teaching aids.[18] As Apple points out, such private sector initiatives should be allowed to continue without governmental interference:

The Commission should recognize the substantial benefits provided by robust competition in the computer and information services markets and should avoid any impulse to regulate these markets in an effort to promote access by schools and libraries to advanced information services. Such regulation not only would be counter-productive, but also would be inconsistent with the intent of the 1996 Act.[19]

Including information services such as Internet access or voice mail in the definition of universal service would pose costly implementation problems and would adversely affect competition in the information services industry. To begin with, it would be extremely difficult to ensure that any universal service subsidies were properly targeted or used, because information services are, by definition, not subject to common carrier or public utility regulation by the Commission or the states. As a consequence, there are no cost data upon which to base subsidies. In addition, by subsidizing a particular information service, the Commission would necessarily be favoring one technology over another because information services can be provided in many different ways. By subsidizing only one technology in a given market, the Commission would necessarily skew competition and disrupt normal market forces. Similarly, because only telecommunications carriers are entitled to receive universal service support payments, subsidizing information services would give telecommunications carriers an insurmountable and unfair competitive advantage over non-carrier providers of information services.

The Commission should therefore adopt a definition of universal service that is limited to the five core services identified by the Notice.

III. THE RECORD MAKES CLEAR THAT UNREGULATED ENHANCED SERVICE PROVIDERS, OPERATORS OF PRIVATE NETWORKS, AND NON-CARRIER PROVIDERS OF TELECOMMUNICATIONS SHOULD NOT BE REQUIRED TO CONTRIBUTE TO UNIVERSAL SERVICE OTHER THAN THROUGH THEIR PAYMENTS TO TELECOMMUNICATIONS CARRIERS

In their initial comments, ITAA, EMA, ITI, ITA, and NRF explained why the obligation to contribute to universal service should be limited to telecommunications carriers. The majority of commenters expressed similar views.[21] ITAA, EMA, ITI, IIA, and NRF also explained why private networks and "other providers" of interstate telecommunications should not be required to make separate contributions, over and above the payments they make to telecommunications carriers, to support universal service.[22] Many other parties agreed.[23]

As NRF aptly pointed out in its initial comments, private networks are not "telecommunications carriers" within the meaning of Section 153(49) of the 1996 Act. Simply stated, operators of private networks are not common carriers nor do they provide service to the public.[24] Rather, these private networks are operated by companies to meet their own internal business needs. None of the parties that have proposed subjecting private networks to the contribution requirements of Section 254 has given any reasons for doing so; nor have they identified the source of the Commission's authority to do so.[25] Moreover, these parties overlook the fact that private network operators, like other users, will contribute to the support of universal service through the payments they make to the telecommunications carriers from which they obtain service.[26]

Similarly, none of the commenting parties has given any justification for requiring "other provider[s] of interstate telecommunications" to make contributions pursuant to Section 254(d). More specifically, these parties have failed to explain why other providers of telecommunications -- that do not serve the public -- should be required to make a separate contribution to support universal service that will primarily benefit telecommunications carriers. These parties have also failed to explain what purpose would be served by requiring "other provider[s]" that do not own their own transmission facilities to make such contributions. These providers will have already paid their fair share for the support of universal service through the charges they pay to the underlying carrier. To require double payment would be patently unfair. Similarly, none of the parties has explained what purpose would be served by requiring payments from "other provider[s] of telecommunications" whose contribution to universal service would be de minimis.[27]

A handful of parties also suggest -- for the most part without any reasoning --that enhanced service providers should be required to contribute to the support of universal service (over and above the payments they make to telecommunications carriers).[28] Their suggestions, however, cannot be squared with the plain language of Section 254(d) of the Act, which states, in relevant part:

TELECOMMUNICATIONS CARRIER CONTRIBUTION. -- 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. . . . Any other provider of interstate telecommunications may be required to contribute to the preservation and advancement of universal service if the public interest so requires.[29]

The analysis set forth in the comments of CompuServe and the Interactive Services Association is instructive in this regard. Their comments contain a detailed and comprehensive analysis of the 1996 Act which demonstrates that Congress did not intend information service providers to contribute to universal service.[30] As explained by CompuServe:

In formulating the statutory distinction between telecommunications and information services, Congress in effect has confirmed the continued viability of, and desirability for the maintenance of, the Commission's Computer II distinction between regulated providers of basic telecommunication services (who are required to contribute to universal service mechanisms) and unregulated providers of enhanced information services such as online and Internet access services (who are not subject to universal service contribution requirements).[31]

Although not entirely clear, LDDS Worldcom's principal concern appears to be the provision of voice services over the Internet, so-called Voice-Over-Net services. LDDS Worldcom argues that the providers of such services are telecommunications carriers subject to the contribution obligations of Section 254 of the Act. Contrary to LDDS Worldcom's apparent belief, there are few, if any, "providers" of Voice-Over-Net services. Rather, individual Internet users purchase special purpose software that enables them to send voice over the Internet. The Joint Commenters submit that it would be inappropriate to classify these users -- or, for that matter, Internet access providers that have no way of knowing how customers are using their services -- as telecommunications carriers or as providers of telecommunications.

USTA raises an equally specious argument. In its comments, USTA urges the Commission to separate the inseparable. More specifically, it argues that the transmission component of information service revenues should be separated from the non-transmission component and that a universal service support contribution should be assessed based on the transmission component, "if discretely identifiable."[33] The Commission, however, beginning with the Second Computer Inquiry, has repeatedly refused to pursue such an approach with respect to information services. In Computer II, the Commission abandoned its Computer I regulatory regime which attempted to distinguish between computer-based communications services, which were regulated, and computer-based data processing services, which were unregulated. The Commission concluded that the technologies of communications and data processing had become so intertwined that it was impossible to draw an "enduring line of demarcation" between them.[34] As the Commission stated:

After three attempts to delineate a distinction between communications and data processing services and failing to arrive at any satisfactory demarcation point, we conclude that further attempts to so distinguish enhanced services would be ultimately futile, inconsistent with our statutory mandate and contrary to the public interest.[35]

From the perspective of the regulator, a major benefit in not classifying services within the enhanced category is that the scope of Commission regulation is focused on those services which are clearly within the contemplation of the Communications Act and which serve as the foundation for all enhanced services. . . . Semantic distinctions are avoided as to whether a given service is data processing, information processing, process control, communications processing, or some other category. As such, the potential for the development of an inconsistent regulatory scheme to accommodate these services is eliminated; all enhanced services are accorded the same regulatory treatment.[38]

Given the inseverability of enhanced services, it would be extraordinarily difficult, if not impossible, to identify revenues attributable solely to transmission. The Commission should therefore reject USTA's suggestion to impose a universal service contribution obligation on the transmission component of enhanced services.

IV. THE PARTIES AGREE THAT ALL UNIVERSAL SERVICE SUBSIDIES SHOULD BE MADE EXPLICIT AND REMOVED FROM INTERSTATE ACCESS CHARGES

The commenting parties, including many local exchange carriers, agree that all implicit (i.e., hidden) subsidies should be removed from interstate access charges.[40] One such hidden subsidy is a product of the Commission's jurisdictional separations rules, which allow local exchange carriers ("LECs") to shift a disproportionate share of their costs to the interstate jurisdiction. These misallocated costs subsidize local service by artificially raising interstate access charges and, consequently, the rates for interexchange service. Subsidies based on these misallocated costs are hidden -- i.e., they parade as an accurate allocation of costs between the interstate and intrastate jurisdictions -- and thus violate the express provisions of new Section 254(e) which require that all universal service subsidies be made "explicit."

As MFS has noted, these jurisdictional manipulations result in a "giant 'fuzzball'" that hides costs, distorts competition, and yields uneconomic prices.[41] The Joint Commenters therefore agree with AT&T and others that have suggested that all of these implicit subsidies should be eliminated and replaced with a single, new, and explicit charge for universal service that: (1) is separate from all other telecommunications charges (i.e., not "buried" somewhere in service rates); and (2) receives its funding from all interstate telecommunications carriers on a competitively neutral basis (e.g., a percentage of each carrier's revenues attributable to telecommunications services).[42]

In its recent Notice of Proposed Rulemaking in CC Docket No. 96-98, the Commission has recognized the interrelationship between this proceeding, the promotion of local exchange competition, and Part 69 access charge reform. The Commission has therefore declared its intention to address these issues in "a comprehensive, consistent, and expedited fashion."[43] The Joint Commenters applaud the Commission's pronouncements in this regard.

The Joint Commenters, however, are troubled by another of the Commission's statements in CC Docket No. 96-98. There, the Commission also stated that it plans to initiate a separate proceeding to review its existing jurisdictional separations rules, rather than conduct that review as part of other proceedings that are already underway.[44] The Joint Commenters submit that the Commission's jurisdictional separations rules must be addressed now, either in this proceeding, in CC Docket No. 96-98, or in the context of access charge reform. Simply put, universal service subsidies cannot be made explicit,[45] access charges cannot be reformed, and local exchange competition cannot flourish if the Commission's jurisdictional separations rules are not contemporaneously changed. If jurisdictional separations reform must be conducted in a separate proceeding, the Commission should commence that proceeding as soon as possible with a view towards concluding it concurrently with the local exchange competition, universal service, and access charge reform proceedings. An absolutely worst-case scenario would be for the Commission to establish new universal service charges without dismantling the subsidies implicit in the current access charge regime.

The need for access charge reform is equally great. As numerous parties have pointed out, the carrier common line ("CCL") charge paid by interexchange carriers must be radically restructured or eliminated in its entirety.[46] The CCL charge subsidizes the costs of subscriber local loops, long-term support ("LTS") payments, and payphone service. The Commission should therefore dismiss -- as patently false -- Bell Atlantic's assertion that the CCL charge is not an implicit subsidy.[47] As the Common Carrier Bureau concluded in February of this year, CCL charges:

represent subsidies to the degree that high-usage [interstate service] customers pay more . . . than the interstate portion of their subscriber line costs, while low-usage [interstate service] customers pay less than the interstate portion of the cost of those lines.[48]

[t]he prices for the local loop, including the CCL and SLC charges, are currently well in excess of their economic cost. An increase to the SLC coupled with an exactly offsetting reduction of the CCL will allow the LECs to continue to recover more than the true cost of the loop.[50]

V. THE PARTIES AGREE THAT A SINGLE, NON-GOVERNMENTAL ENTITY SHOULD ADMINISTER UNIVERSAL SERVICE SUPPORT FUNDS

The vast majority of commenting parties support the designation of a single, non-governmental entity to administer universal service support funds.[54] Very few, by contrast, expressed support for the Commission's proposal to rely on the states to perform this task. Indeed, some states opposed state administration of universal service funds. As the Idaho Public Utilities Commission pointed out, many states do not have the financial resources to establish the bureaucracy necessary to administer such funds, and requiring the states to do so would be considered another unfunded mandate emanating from Washington.[55] New Mexico also points out that state administration would lead to inequities in the achievement of universal service. Relatively poor states would have less money to distribute and, as a consequence, consumers in these states would enjoy an inferior level of universal service vis-a-vis consumers in relatively affluent states.[56]

Although some commenters proposed that the National Exchange Carrier Association ("NECA") be appointed the administrator of universal service funds,[57] most parties disagreed. The Joint Commenters share the concern of many that NECA is too closely associated with the interests of the LECs to act as a neutral administrator of universal service funds in a competitive environment.[58] The Commission should therefore designate a single, non-governmental entity to act as the administrator of the universal service support mechanism it adopts in this proceeding.

VI. CONCLUSION

For all of the reasons set forth above, as well as in the initial Joint Comments of ITAA and EMA and the separate initial comments of ITI, IIA, and NRF, the Joint Commenters urge the Commission to: (1) limit the definition of universal service to the five "core" services identified by the Notice; (2) eliminate all implicit subsidies from interstate access charges and devise a new, explicit universal service support mechanism that collects the necessary funds from interstate telecommunications common carriers on a nondiscriminatory and competitively neutral basis; (3) not require universal service contributions, over and above the payments they make to interexchange carriers, from purely private networks, unregulated enhanced service providers and non-carrier providers of interstate telecommunications; and (4) appoint a single, non-governmental entity to administer the collection and distribution of universal service support payments.

Respectfully submitted,

INFORMATION TECHNOLOGY ASSOCIATION
OF AMERICA
ELECTRONIC MESSAGING ASSOCIATION
INTERNATIONAL TECHNOLOGY INDUSTRY
COUNCIL
INFORMATION INDUSTRY ASSOCIATION
NATIONAL RETAIL FEDERATION



By: Joseph P. Markoski
James M. Fink
Squire, Sanders & Dempsey
P.O. Box 407
Washington, D.C. 20044
(202) 626-6600

May 7, 1996