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
RURAL TELEPHONE COALITION

May 7, 1996

TABLE OF CONTENTS

SUMMARY. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . iii

I. THE COMMISSION AND JOINT BOARD MUST REJECT PROPOSALS
NOT IN COMPLIANCE WITH THE 1996 ACT . . . . . . . . . . . . . . . . . . . . . . . 1

A. THE CORE SET OF FEDERALLY DEFINED UNIVERSAL
SERVICES IS AT THIS TIME ONLY A STARTING POINT
IN A CONTINUING EVOLUTION . . . . . . . . . . . . . . . . . . . . . . . . . . . 3

B. THE BENCHMARK RATE PROPOSALS DO NOT ASSURE
REASONABLE AND COMPARABLE RATES . . . . . . . . . . . . . . . . . . . 4

C. THE BENEFICIARIES OF THE NEW UNIVERSAL SERVICE
MECHANISM ARE ALL USERS OF THE NETWORK. . . . . . . . . . . . 6

D. THE CONCEPT OF PORTABILITY OF UNIVERSAL SERVICE
SUPPORT IS INCONSISTENT WITH THE ACT . . . . . . . . . . . . . . . . 7

E. THE BENCHMARK COSTING MODEL IN ITS CURRENT FORM
WOULD BE HARMFUL TO UNIVERSAL SERVICE . . . . . . . . . . . . 8

F. INCREMENTAL COSTING AND PRICING THEORY HAS NO
CONCEPTUALLY SOUND APPLICATION IN UNIVERSAL
SERVICE MECHANISMS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11

G. INTEREXCHANGE SERVICES MUST CONTINUE TO BE
RESPONSIBLE FOR AN APPROPRIATE PORTION OF
NON-TRAFFIC SENSITIVE AND SWITCHING COSTS, AND
IMPOSITION OF FULL SLCs CANNOT LEAD TO
REASONABLE, AFFORDABLE, AND COMPARABLE
RATES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15

II. RECOMMENDATION FOR SOUND POLICIES . . . . . . . . . . . . . . . . . . . . . . 18

A. CURRENT HIGH COST MECHANISMS CAN BE ACCOMMODATED
WITHIN THE REQUIREMENTS OF THE ACT . . . . . . . . . . . . . . . . . 19

B. THE NEED FOR A TRANSITION DEPENDS ON THE EFFECT
OF THE NEW PROVISIONS ON RATEPAYERS, LECs
AND UNIVERSAL SERVICE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22

III. CONCLUSION: THE COMMENTS DEMONSTRATE THE NEED FOR A
MORE FOCUSED SET OF PROPOSALS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22

SUMMARY

The initial comments of the Rural Telephone Coalition, and many other parties, pointed out the major changes in approach to universal service issues required by the Telecommunications Act of 1996. Despite the specific requirements of the 1996 Act, however, many parties advocated approaches which would be inconsistent with the Act's requirements. The various proposals of these parties to limit support to low income or residential users, base support on some benchmark, to define cost by proxy and to impose substantial deaveraged increases in the Subscriber Line Charge do not meet the requirements for just, reasonable and affordable rates, comparability between urban and rural, and sufficient, predictable support mechanisms.

While LEC industry parties are in not in agreement, the better view is that the new support mechanisms required by the 1996 Act cannot be restricted to the amount allocated to the interstate jurisdiction by the current Part 36 separations rules, because the purposes of the Act are not so limited.

The attempts by some parties to restrict the scope of supported services is inconsistent with the objectives ensuring access to advanced telecommunications and information services. Following adoption of the core set of services, the Commission should commit to frequent review to ensure that the program stays current with respect to technology deployment.

The proposals of different parties to use "benchmarks" to determine support eligibility do not adequately addresses the requirement of comparability, either because they focus only on interstate allocated costs or because they make apples to oranges comparisons. These proposals do not reflect the substantially restricted calling scope which characterizes rural areas so that the typical monthly bill of the rural subscriber exceeds that of the urban because of toll charges to reach essential locations within the community of interest.

Proposals to limit support to residential services, or to provide "portability" of support are also inconsistent with the 1996 Act.

The Benchmark Costing Model (BCM) while theoretically interesting, has not been shown to represent accurately the costs incurred in serving rural areas. Absent such a showing the Commission cannot find that it meets the 1996 Act's requirements that support mechanisms be sufficient and predictable. Should the Commission decide to experiment with use of this model on large LECs, it must carefully isolate them from small companies so that inconsistent eligibility determinations do not result.

Several parties promote the use of incremental costing methodologies in an obvious effort to reduce their own support obligations or access charge bills. These recommendations, sounding in sophisticated economic theory, ignore the basic fact that somebody has to pay the embedded cost, and if that somebody is the basic local service subscriber, the result will be substantial increases inconsistent with the objectives of the 1996 Act. As the Washington Utilities and Transportation Commission recently observed, the local loop is required to provide all of the basic services, yet it is incremental to none of them.

In a similar vein, several parties suggest that interexchange carriers should not be required to pay a share of non-traffic sensitive cost when they use a LEC local loop to originate or terminate calls. Rather, the SLC charge should recover 100% of the loop cost, or at least the portion of the loop not recovered through the USF. The IXCs understandably want for free what in any other business they would have to pay for, but such free service is neither just nor reasonable. To the contrary, the result would be inconsistent with the universal service objectives of the Act because of the shift of burden to local subscribers. The separate issues of the most appropriate rate structure to recover such cost and the proper balance between CCL and SLC charges can be readily dealt with, without causing large increases to subscribers. Similarly, the current cost allocation formula for traffic sensitive costs of small companies appropriately recognizes the additional costs of equipping a switch to handle non-local traffic and the higher costs of smaller switches.

In order to proceed with this Docket in a manner which meets the statutory timeline, there are several steps the Joint Board and Commission can take now without resolving all of the difficult questions presented by the new Act. First, there should be a recognition that the current high cost support mechanism can be readily integrated into the new rules. By building on the success of these rules, disruption of subscriber rates can be minimized, while a new recovery mechanism and newly eligible carriers can be accommodated. As the new rules begin to take shape, it will be more clear as to whether a transition mechanism is required.

The Commission can meet the Act's requirements by adopting the core set of services, directing recovery to be made on a retail revenue basis, and by adopting a timetable to fully implement Section 254. Administration should be conducted by NECA in a manner that avoids preventing it from performing its tariff and pooling functions on behalf of its members. To accomplish this, a more specific proposal should be issued promptly containing proposed rules and a proposed timetable. A specific issue in the timetable should be a plan for expanding universal service support to cover the costs of service to schools, libraries and health care providers.