[2] OPUC, para. 1-10

[3] OPUC, para. 44-47.

[4] The concept of core services replaces the concept of basic service with the passage of the 1996 Act.

[5] "GTE's Comments," In the Matter of Federal-State Joint Board on Universal Service, Before the Federal Communications Commission, FCC 96-93, CC Docket No. 96-45, April 12, 1996 (hereafter GTE), does not state any specific estimates of the resulting increases in basic rates, but it presents one of the most aggressive proposals to raise and rebalance rates which inevitably would lead to large increase in basic rates. The proposal includes dollar-for-dollar revenue replacement (p. 9), immediate and total rate rebalancing for access, toll, business and enhanced services (p. 14), an increase in the EUCL (p. 15), deaveraging of the EUCL (p. 15), complete recovery of all embedded costs including depreciation reserves (p. 16), and a surcharge placed on ratepayers bills to recover universal service fund costs (pp. 16-17).

[6] "Comments of Southwestern Bell Telephone Company," In the Matter of Federal-State Joint Board on Universal Service, Before the Federal Communications Commission, FCC 96-93, CC Docket No. 96-45, April 12, 1996 (hereafter, SWB), proposes an explicit affordability benchmark which, as described below, would result in rate increases of at least $8 per month for core services in its service territory.

[7] "Comments of AT&T Corporation," In the Matter of Federal-State Joint Board on Universal Service, Before the Federal Communications Commission, FCC 96-93, CC Docket No. 96-45, April 12, 1996 (hereafter AT&T) advocates an increase of $3.50 per month in the EUCL (p. 16). It also advocates a reduction in access charges equal to approximately $11 per month, arguing that the difference will not be reflected in residential ratepayer bills, although it would not preclude rate rebalancing (pp. 6-7). AT&T's affordability standard is determined only by penetration rates (p. 16), as long as penetration does not decline, core service rates can rise, and therefore ultimately would allow much larger rate increases.

[8] "Comments of Sprint Corporation," In the Matter of Federal-State Joint Board on Universal Service, Before the Federal Communications Commission, FCC 96-93, CC Docket No. 96-45, April 12, 1996 (hereafter Sprint) advocates requiring states to rebalance rates up to a federal benchmark (p. 5). Sprint extends rate rebalancing well beyond access and toll, however, arguing that states must rebalance business and intrastate access charges and adopt state subscriber line charges (pp. 19-20). For rural areas, the rate increase would include at least a $3 increase up to the national urban average, plus at least a $2.50 increase in subscriber line charges.

[9] "Comments of LDDS WorldCom," In the Matter of Federal-State Joint Board on Universal Service, Before the Federal Communications Commission, FCC 96-93, CC Docket No. 96-45, April 12, 1996 (hereafter LDDS), argues for an increase in the subscriber line charge and the removal of all "non-cost-based" expenses from access charges, which the companies would "be free to either "absorb internally" or "pass them along to consumers in their retail rates" (p. 5).

[10] MCI, alone, among the major long distance companies does not support an increase in the EUCL, "MCI Comments," In the Matter of Federal-State Joint Board on Universal Service, Before the Federal Communications Commission, FCC 96-93, CC Docket No. 96-45, April 12, 1996 (hereafter MCI), pp. 13-14.

[11] OPUC, para. 19-21.

[12] "Comments of the National Association of State Utility Consumer Advocates," In the Matter of Federal-State Joint Board on Universal Service, Before the Federal Communications Commission, FCC 96-93, CC Docket No. 96-45, April 12, 1996 (hereafter NASUCA), p. 17); "Initial Comments of the Office of the Ohio Consumers' Utility Counsel," In the Matter of Federal-State Joint Board on Universal Service, Before the Federal Communications Commission, FCC 96-93, CC Docket No. 96-45, April 12, 1996 (hereafter OCC), p. 3.

[13] "Comments of Bell Atlantic," In the Matter of Federal-State Joint Board on Universal Service, Before the Federal Communications Commission, FCC 96-93, CC Docket No. 96-45, April 12, 1996 (hereafter Bell Atlantic), p. 11-12 and "Comments of NYNEX," In the Matter of Federal-State Joint Board on Universal Service, Before the Federal Communications Commission, FCC 96-93, CC Docket No. 96-45, April 12, 1996 (hereafter NYNEX), p. 3. It is ironic to note that Sprint (pp. 14-15) claims that the Benchmark Cost Model treats loop as a common cost for enhanced services, yet, fails to accept the fact that loop is a common cost for long distance services. Similarly, it is ironic that PacBell invokes Smith v. Illinois, as a case that established the principle of cost sharing between the federal and state jurisdictions. PacBell fails to note that loop facilities should be subject to the same sharing principles. The state regulators believe this principle requires long distance to share in common costs such as loop (Maine, at al., p. 18).

[14] "Comments of the State of Maine Public Utility Commission, the State of Montana Public Service Commission, the State of Nebraska Public Service Commission, the State of New Hampshire Public Utilities Commission, the State of New Mexico State Corporation Commission, the State of Utah Public Service Commission, the State of Vermont Department of Public Service and Public Service Board, and the Public Service Commission of West Virginia" In the Matter of Federal-State Joint Board on Universal Service, Before the Federal Communications Commission, FCC 96-93, CC Docket No. 96-45, April 12, 1996 (hereafter Maine, et al.), p. 18; "Comments of the Idaho Public Service Commission" In the Matter of Federal-State Joint Board on Universal Service, Before the Federal Communications Commission, FCC 96-93, CC Docket No. 96-45, April 12, 1996 (hereafter Idaho), p. 17); "Comments of the Public Utility Commission of Texas" In the Matter of Federal-State Joint Board on Universal Service, Before the Federal Communications Commission, FCC 96-93, CC Docket No. 96-45, April 12, 1996 (hereafter Texas), p. ii; "Initial Comments of the Pennsylvania Public Utility Commission to the Notice of Proposed Rulemaking and Order

Establishing Joint Board" In the Matter of Federal-State Joint Board on Universal Service, Before the Federal Communications Commission, FCC 96-93, CC Docket No. 96-45, April 12, 1996 (hereafter Pennsylvania), p. 7.; "Comments of the Florida Public Service Commission" In the Matter of Federal-State Joint Board on Universal Service, Before the Federal Communications Commission, FCC 96-93, CC Docket No. 96-45, April 12, 1996 (hereafter Florida), p. 22; "Initial Comments of the Virginia Corporation Commission," In the Matter of Federal-State Joint Board on Universal Service, Before the Federal Communications Commission, FCC 96-93, CC Docket No. 96-45, April 12, 1996 (hereafter Virginia), p. 5; "Comments of the Staff of the Indiana Utility Regulatory Commission" In the Matter of Federal-State Joint Board on Universal Service, Before the Federal Communications Commission, FCC 96-93, CC Docket No. 96-45, April 12, 1996 (hereafter Indiana), p. 9.

[15] See the opening statement of Commissioner Sharon Nelson of Washington to the Joint Board, April 12, 1996, which challenged the data purporting to show a subsidy.

[16] Indiana, p. 6, identifies the analytic steps through which the Commission must go to establish that evidentiary basis.

[17] NASUCA (p. 14), identifies the following states in which the costs are vastly overstated -- Maryland, Pennsylvania, Florida, New Hampshire, Maine, Washington, Indiana, Iowa, and California.

[18] "Fifteenth Supplemental Order: Decision and Order Rejecting Tariff Revisions: Requiring Relief," Docket No. UT-950200, Washington Utilities and Transportation Commission v. U S West Communications Inc., April 11, 1996 (hereafter, Washington).

[19] Washington, p. 10.

[20] "Comments U S West Inc. In the Matter of Federal-State Joint Board on Universal Service, Before the Federal Communications Commission, FCC 96-93, CC Docket No. 96-45, April 12, 1996 (hereafter USW), Schedule 3.

[21] SWB, Attachment 5.

[22] The model was developed jointly by MCI, Sprint, USW and NYNEX Benchmark Cost Model, CC Docket No. 80-286, December 1, 1995 (hereafter, BCM).

[23] Washington, p. 10.

[24] USW, Schedule 3.

[25] SWB, p. 17, Bell South, p. 7, GTE, p. 16.

[26] SWB, Attachment 6.

[27] Bell South, p. 7.

[28] Office of Public Utility Counsel, "Comments for Workshop No. Five," Rulemaking on Transmission Pricing and Access, Before the Public Utility Commission of Texas, Project No. 14045.

[29] Id., p. 7.

[30] OCC, p. 9, notes the excess profits of some local exchange companies.

[31] Even the two local exchange companies that did not argue for rate increases recognize that the FCC has limited authority to set local rates for core services (PacBell, pp. 19-20; NYNEX, p. 4).

[32] Even "Comments of Pacific Telesis," In the Matter of Federal-State Joint Board on Universal Service, Before the Federal Communications Commission, FCC 96-93, CC Docket No. 96-45, April 12, 1996 (hereafter PacTel) points out the limitations on the authority of the FCC to interfere with intrastate rate making (pp. 19-20). Indiana, p. 9, also notes that the limitation on FCC authority.

[33] Section 251(d)(3), 252(d), 253(b), 254(f).

[34] OCC, p. 5, notes the permissive nature of the authority granted the FCC to oversee the transition to a more competitive market.

[35] Section 601(c)(1).

[36] NYNEX, pp. 4-5.

[37] Sprint, pp. 14-15.

[38] SWB, p. 19.

[39] GTE, p. 17.

[40] USW, p. 2; AT&T, p. 8.

[41] NASUCA, p. 15.

[42] Conference report, p. 131.

[43] Rather than surcharging customers, telecommunications service providers may choose, for competitive reasons, to absorb the costs associated with the contribution for universal service.

[44] The Notice, para 112-115, laid out this argument without stating the opposing point of view.

[45] USW, p. 4; Pactel, p. 12; NYNEX, p. 8.

[46] SWB, p. 3; USW, p. 12.

[47] For example, USW, p. 10, shows a bottom figure of $4 billion using the MCI/Hatfield model, that assumes $1 billion in rate increases. MCI, Appendix A, puts the figure at $5 billion.

[48] MCI, pp. 3, 10 ; AT&T, p. 7.

[49] MCI, p. 15 refers to $14 billion. USW (p. 10), shows a figure of $11.6 billion calculated assuming a basic monthly rate of $20. This implicitly assumes an increase in basic monthly rates of approximately $1.3 billion. The implicit amount of the so-called subsidy is $13 billion.

[50] "Comments of the United States Telephone Association," In the Matter of Federal-State Joint Board on Universal Service, Before the Federal Communications Commission, FCC 96-93, CC Docket No. 96-45, April 12, 1996 (hereafter USTA) uses a 1 percent of income benchmark, as does SWB. GTE embraces the concept of an affordability benchmark and parts of the USTA proposal.

[51] USTA, pp. 16-17.

[52] SWB, Attachment 4.

⁵³ GTE/Contel rates throughout the state are relatively uniform, falling in the range of $7.10 to $7.65. A weighted average is presented in the table, coupled with the state-wide average for taxes, touchtone, 911 and other charges.

⁵⁴ Public Utilities Commission of Texas, PUC Annual Report, "Regulated Utilities in Texas and Texas Telephone Rates," shows that rates for these companies are generally lower than for the larger companies.

⁵⁵ In fact, the authors of the BCM model feel that the costs provided in the first benchmark study overestimate the costs in low density, rural areas. Therefore, the disparity between claimed embedded costs and benchmark costs in high density urban areas is likely to be greater than implied in the available data because the BCM state-wide average is overstated.

⁵⁶ SWB, Attachment 6.

⁵⁷ MCI (p. 4), AT&T (Appendix B), and Florida, p. 5, use $20. Sprint refers to national urban average prices (p. i).

⁵⁸ SWB, Attachment 4.

⁵⁹ USTA, pp. 6-7.

⁶⁰ Once a benchmark price is established, the company providing the service cannot make claims on the universal service fund for any revenues lost because rates are below the benchmark. This creates pressures to raise rates to that level. All of the local companies have requested either rate rebalancing or pricing flexibility (NYNEX, p.8) to accomplish the increase in rates. Thus, it seems clear that the benchmarks will be the target prices that local companies will seek to impose.

⁶¹ SWB, p. 7.

⁶² SWB, p. 7.

⁶³ There are about 150,000 households in the state presently enrolled in telephone assistance programs (Texas, P. 11) .

⁶⁴ AT&T, p. 7; LDDS, p. 5; MCI, p. 13; SWB, p. i.

⁶⁵ SWB, p. 19, GTE, p. 17.

⁶⁶ SWB, pp. 5-6.

⁶⁷ SWB, Attachment 1 shows $355 million per year of interstate subsidy and Attachment 6 shows $510 million per year of depreciation reserves. These are for SWB entire operations (approximately 13.6 million lines). These are the sums that would be collected in the interstate and depreciation reserve surcharges.

⁶⁸ U.S. Department of Commerce, Statistical Abstract of the United States, September, 1995, Table 728.