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 SOUTHERN NEW ENGLAND TELEPHONE COMPANY

The Southern New England Telephone Company (SNET) respectfully submits these comments in reply to comments filed in the Federal Communications Commission's (Commission or FCC) NPRM on Universal Service.[1]

I. Introduction

Several states including Connecticut, California, and Texas have begun to address many of the issues presently under consideration by the FCC to implement the Telecommunications Act of 1996[2] (Act) as local competition is already progressing in those states. To ensure the continuation of universal service availability while competition is developing is a very complex task and has no clear-cut solutions. However, many commenting parties have recognized that universal service issues may be most effectively addressed at the state level, rather than the federal level. Many states have already made initiatives to ensure that the goals of universal service continue to be achieved. Furthermore, across the country there have been varying efforts to bring the advantages of the information superhighway to the educational community.

II. The majority of the universal service support responsibility should be left to the states, with a minimal federal fund. Any fund should incorporate a transition mechanism to ensure competition is encouraged.

As US West states in its comments, "...it is important to keep in mind that the support mechanisms currently associated with universal service obligations were devised in an environment steeped in notions of social compacts, where a local service monopoly was presumed."[3] Differing states may have instituted differing rate structures due to historical social policy objectives. Furthermore, the level and manner that competition and universal service issues are being addressed at the state levels have resulted in varying bases for rates. For example, the Commenting States[4] point out that local "rates tend to vary from state to state, and from carrier to carrier, for numerous reasons unrelated to cost." Several factors contribute to varying local rates including geographically different local calling areas, state commissions' rate designs, service composition, etc.[5] These differences which presently exist among states make it difficult, if not impossible, for a federal universal service mechanism to incorporate effectively the varying state telecommunications markets. Certain end user targeted programs, such as Lifeline and Link Up, may be appropriately mandated by the Commission in order to ensure nationwide affordability of telecommunications services to all consumers. However, the states should be primarily responsible for ensuring that universal service continues in accordance with the Act as competition is being introduced and sustained.

SNET agrees with the many commenters who recommend that any federal fund for high cost support be designed to recover only the significant, carefully targeted, high cost areas. The remaining funding for universal service should be left to the states.[6] For example, the Public Utility Commission of Texas states "that the interstate fund should focus on national high-cost support, along with the interstate portion of lifeline, relay, and other federal policy mechanisms. Each state should be charged with establishing ... intrastate universal service programs..."[7] Similarly, the Michigan Public Service Commission states that "...the FCC should structure a support program which sets only broad guidelines affording the States substantial discretion to administer support funding."[8] MFS Communications Company, Inc. makes the same argument stating, "Regulating the level of local service rates should continue to be the responsibility of state regulators who have historically ensured that local rates are `affordable'." MFS also states that the existing high cost fund should be capped at current levels.[9]

In Connecticut, the days of traditional rate of return regulation are over. Now that competition has been mandated by Public Act 94-83 passed by the Connecticut General Assembly, competitive forces will be relied upon to ensure the appropriate provision of telecommunications services in the long term. On the national level the Act will encourage competition in the same manner as was legislated in Connecticut two years ago. SNET believes it is necessary to evaluate the need for universal service support mechanisms at each stage of increased competition.[10] Initially, the FCC may deem it necessary to consider the continuation of the existing high cost support mechanisms in some form as competition may be introduced in some areas sooner than others. However, the FCC must allow for a transition to phase down any support as competition is embraced at the local levels. Such a transition should result in only the end user support mechanisms such as Lifeline and Link Up. MFS takes a similar position as SNET in arguing that competition may obviate the need for a universal service support mechanism stating that "Competition preserves and advances universal service so universal service subsidies should be provided only in extraordinary circumstances..."[11]

III. The education requirements of the Act would be best addressed at the state level due to the varying degrees of competition in state and local markets and the state programs already implemented.

The education community is a large consumer of telecommunications services and promises to continue to be a large user of these services. All market players recognize this as they enter the market.[12] Therefore, competition will continue to encourage the introduction of advanced services to the education community. Furthermore, many states have already acknowledged the importance of ensuring that services are timely deployed to educational institutions and have approved, if not encouraged, plans to ensure this market receives the appropriate attention.[13] Additionally, some states have encouraged grass roots efforts to bring the advantages of the information superhighway to schools and provide programs to encourage the use of telecommunications services by educational institutions.[14]

Due to the natural incentive of competitive providers to offer advanced telecommunications services to educational institutions, as well as the states incentive to ensure these services are widely deployed in their schools, it is not necessary or appropriate for the Commission to institute a funding mechanism on a national level to support this effort. Rather, it would be appropriate for national education standards to include telecommunications service requirements to which the states must comply. This would ensure that all schools have a basic set of similar services provided to them, while allowing the states the freedom to determine the appropriate funding mechanism and any additional standards or services to be provided to all such institutions. Furthermore, this would recognize the varying degrees to which the telecommunications needs of educational institutions have already been addressed within the states,[15] while allowing competition to participate in providing services to this market to the extent that competition exists.

IV. Summary

Due to the various initiatives to introduce competition into the telecommunications markets that have occurred in the past few years, the Commission should allow the states the maximum flexibility in instituting universal service programs. The federal universal service program should be transitioned, as competition increases, to culminate in an end user income-based assistance program only. The Commission should recommend minimum standards for states to comply with the education requirements contained in the Act. However, the states should be allowed to fulfill these requirements in the way each state deems appropriate.

Respectfully submitted,
The Southern New England Telephone Company
By: _____________________________________
Anne U. MacClintock
Vice President - Regulatory Affairs & Public Policy
227 Church Street
New Haven, Connecticut 06510
(203) 771-8865

May 7, 1996