XVI. Special Needs of Low Income Customers
Another very important issue is how this new era of competition at the local level will affect the
low income customers in Pennsylvania. Currently, the telephone penetration rates for minorities,
low income consumers, the elderly and rural residents are not as high as Pennsylvania's statewide
average penetration rate of 96.8%. The Joint Board, in its recent Recommended Decision, noted
that current penetration rates are only 87.1 percent among households with annual incomes less
than $10,000.00 and 75 percent among households with annual incomes less than $5000.00 This
appears to coincide with the data contained in the record of this proceeding. OCA Witness
Brockway testified that the penetration rates for low-income households and rural areas of the
state were lower than the statewide average. Direct Testimony at p. 26.
The following excerpt from Brockway's testimony gives a graphic depiction of the severity of the plight of low-income families in Pennsylvania in this regard:
An NCLC Energy and the Poor survey published last year documents the severity of the low-income family's plight in Pennsylvania. Low-income budgets are already stretched beyond reasonable limits. While the U.S. cost of living for low-income households doubled in the period 1979-1993, the minimum wage increased only 47%. AFDC benefits have increased at nearly the same rate as the cost of living but, in Pennsylvania (at 1992), still only provide 45% of the income necessary to meet the poverty threshold and 69% of the Pennsylvania-determined need. Even after the additional benefits of LIHEAP (4%, now threatened by the federal budget crisis), the burden of energy, water, and sewer alone takes up 28-29% of the income of a Pennsylvania AFDC recipient -- before food and rent, let alone telephone service. A Pennsylvania AFDC family of three receives $421 a month. Thus an average Bell Atlantic $11.39 basic exchange flat rate bill equals three per cent of income. A doubled telephone rate and the loss of LIHEAP would leave only $265 per month for three people's food, rent, clothing, medicines, and everything else.
OCA Stmt. 2.0 (Brockway) at p. 62.
OCA witness Brockway testified that increasing telephone charges likely will have a
disproportionate effect on Pennsylvania's low income subscribers. There is also evidence in the
record that if nonbasic service charges decrease, there may be some offset, at least to those
subscribers who also subscribe to nonbasic services or utilize toll calling. Unfortunately, given
the record before us, we are unable to determine the impact or offset with any degree of
accuracy. Therefore, we will require further study of this issue by the Universal Service Task
Force we establish today to explore the figures associated with the relationship of BUS prices
and associated impact upon low income penetration rates. We also will require the Task Force to
attempt to pinpoint with greater accuracy the population segments in Pennsylvania with low
subscribership rates and the reasons for their inability to connect to the network.
In the meantime, we concur with the OCA that low-income affordability programs such as
Lifeline should be made available in other service territories other than Bell's. OCA Stmt. 2.0
(Brockway) at p. 44. We agree with witness Brockway that because the "difficulty of obtaining
or retaining telephones are acute for low-income customers wherever they live, additional steps
to address this particular barrier to [u]niversal [s]ervice are warranted." Id.
The availability of interstate funds to support the rate reduction makes these programs especially
attractive. The federal Lifeline program provides support that reduces the charges low-income
consumers incur for local service. Two plans are available. Under Plan 1, an eligible
subscriber's monthly telephone bill is reduced by an amount equal to the SLC, which is currently
$3.50. There is a federal waiver of 50% of the SLC, with the state matching waiver of the other
half. Subscribers who satisfy a state-determined means test receive assistance for a single
telephone line in their principal residence. Under Plan 2, the plan in effect in portions of
Pennsylvania, the subscriber's bill may be reduced by twice the SLC. Link Up covers half of the
first $60.00 of installation charges. Where the subscriber has a deferred payment plan, Link Up
will pay interest on the balance up to $200.00 for up to one year. To be eligible, customers must
meet a state-established means test, and may not, unless over 60 year old, be another's dependent
for federal income tax purposes.
Lifeline and Link Up service provide some relief to low income Pennsylvanians. Currently, however, only low income subscribers in Bell's service territory have access to Lifeline and LinkUp services. Consequently, we will require LECs, to file proposed Lifeline plans to assist low income subscribers in their service territories, within 60 days of the entry date of this Opinion and Order.
We also note other proposals of the Federal State Joint Board designed to increase the effectiveness of the federal Lifeline and Link Up programs. For instance, the Joint Board recommended that the FCC implement a national rule prohibiting telecommunications carriers from requiring Lifeline-participating subscribers to pay service deposits in order to initiate service if the subscriber voluntarily elects to receive toll blocking. Additionally, the Joint Board has recommended that toll blocking be made available to all Lifeline subscribers at no additional charge. Recommended Decision at para. 429.
Finally, as discussed below, we charge the Universal Service Task Force with examining this issue in more depth on an ongoing basis. It shall be the responsibility of the Task Force to collect data low income penetration rates in Pennsylvania, factors affecting same, and to make recommendations to the Commission, from time to time, on ways to increase subscribership among Pennsylvania's low income community.
XVII. Pennsylvania Universal Service Task Force
Because of the major significance of this issue, the need for reevaluation on an ongoing basis,
and the need for continued monitoring and study, we establish today the "Pennsylvania Universal
Service Task Force" to make recommendations to the Commission on an ongoing basis on
universal service issues which may arise from time to time.
Membership on the Task Force will consist of one representative each from the: 1) PTA, 2) the
Pennsylvania Library Association, 2) the Pennsylvania Department of Education, 3) the
Pennsylvania Department of Health, 4) RUS, 5) the Pennsylvania Rural Development Council 5)
OCA and 6) OSBA; three representatives from the: 1) Commission and 2) wireless concerns and
five representatives from each of the following: 1) IXCs, 2) ILECs (consisting of at least two
rural telephone companies) and 3) CLECs; and other members, including representatives from
consumer groups, on an as needed and as requested basis.
The Task Force's membership shall be charged with making recommendations and submitting reports to the Commission on a wide range of issues involving universal service in Pennsylvania including, inter alia: the range of services to be provided to libraries, health care institutions and educational institutions under § 254; the level of discount to providers of services to libraries and educational institutions under § 254(c)(1)(B); monitoring and reporting requirements that provide an adequate range of information necessary for the Commission to effectively monitor universal service in Pennsylvania in the future; information relative to nonsubscribers in Pennsylvania and ways to more effectively meet their needs in the future; the special needs of low income customers in Pennsylvania; the need for changes to the definition of universal service in the future; further refinements to BUS costing models; and ways to encourage prompt infrastructure modernization in Pennsylvania including compliance with Chapter 30's alternative regulation and infrastructure modernization requirements.
Given the wide range of topics which the Task Force will be responsible for in the future, we encourage the Task Force to break up into various Committees to address the many different and varied issues. For example, the Task Force may be comprised of committees to address the following: 1) Universal Service to Library, Health Care and Educational Institutions, 2) BUS Costing Model Refinements, 3) Monitoring and Reporting Requirements, 4) Definitional Issues and Changes, 5) Subscribership Issues. Members of the Task Force could participate in one or multiple Committees, depending upon their particular interests and areas of expertise. The Commission expects, however, that each Committee would include adequate representation from all sectors of industry and consumer groups.
The Task Force is to begin its work immediately. The Commission would like recommendations
on further refinements, if necessary, to the BUS costing model for Pennsylvania by June 30,
1997. The Commission representatives shall be responsible for scheduling meetings of the Task
Force and ensuring the timely completion of recommendations to the Commission.
XVIII. Relationship with the Federal Universal Service Proceeding
Bell argues that it would not be prudent for this Commission to set up a funding mechanism for
the Commonwealth until the federal mechanism is established. Bell Main Brief at p. 55. Bell
argues that it would "be enormously inefficient for this Commission to put in place a funding
mechanism now which might later be deemed inconsistent with the federal mechanism. Bell
Main Brief at p. 55.
Teleport likewise argues that there is a problem with this Commission's consideration and
determination of a universal service subsidy five months before the Federal-State Joint Board
makes a recommendation to the FCC and 11 months before the FCC implements its regulations.
The problem arises argues Teleport because the Commission, by definition, cannot know what
proportion of the universal service obligation will be satisfied by the as-yet-undefined Federal
rules. Teleport also argues that the Commission cannot possibly ensure consistency between its
regulations and the corresponding federal rules. Tr. at 1575-76 (Kouroupas); Teleport Main
Brief at p. 7.
Teleport further argues that an improper subsidy calculation or one which is performed based on
different geographic areas or different assumptions from those the Federal-State Joint Board
recommends will make it impossible to verify that the state mechanism is consistent with federal
rules. Teleport Main Brief at p. 8. For instance, Teleport argues that if this Commission uses a
wire center as the basis for disaggregation, it may end up with an "apples-to-oranges"
comparison if the FCC adopts a mechanism based on subsidies calculated on a different
geographic measurement unit. Teleport Main Brief at p. 20.
Teleport argues that the public interest will not be harmed by waiting for the FCC and Federal-State Joint Board to establish rules for universal service support which this Commisison can then use to determine whether additional support is required. Teleport Main Brief at p. 25.
Similarly, MFS urges the Commission to wait until the FCC acts also. MFS Main Brief at p. 3.
MFS states that any action by the Commission at this time would be premature and would run
the risk of violating the Joint Board's proposals. Id. Additionally, argues MFS, since state action
must be "consistent" with the FCC rules, the Commission should await action by the Joint Board.
Id.
On the other hand, AT&T urges the Commission not to defer necessary reforms in Pennsylvania in order to await future action at the Federal level. OCA agrees. Brockway Rebuttal at p. 38. AT&T states:
As evidenced by this proceeding itself, the Commission has consistently been far ahead of the efforts at the federal level and in other states in bringing about true universal service reform. There is nothing in the recently enacted Telecommunications Act of 1996 that requires the Commission to abandon that effort. To the contrary, the Act makes the need for immediate reform all the more urgent by abolishing existing methods for funding universal service subsidies, and in particular by mandating what is, in any event, the essential step in universal service reform -- the reduction of carrier access charges to their direct economic cost.
While there is little doubt that this Commission may adopt regulations of this nature under the Federal Act to promote universal service, the controversy arises when the language of 254(f) is considered:
(f) State Authority.--A State may adopt regulations not inconsistent with the Commisison's rules to preserve and advance universal service. Every telecommunications carrier that provides intrastate telecommunications services shall contribute, on an equitable to the preservation and advancement of universal service in that State. A State may adopt regulations to provide for additional definitions and standards to preserve and advance universal service within that State only to the extent that such regulations adopt additional specific, predictable, and sufficient mechanisms to support such definitions or standards that do not rely on or burden Federal universal service support mechanisms.
We agree with OTS that "[i]n deciding whether or not to wait, the Commission should, inter alia, consider whether delays in the provision of Universal Service support for "high cost" could thwart the development of competition in these areas." OTS Main Brief at p. 8. We agree with OTS that waiting to establish a funding mechanism will delay competition in some suburban and rural areas. OTS Main Brief at p. 33. While several parties have indicated that universal service will not be harmed by a delay in the establishment of a state funding mechanism, no party has contended that local competition in high cost areas will not be hindered by a delay. We must consider the effects on local competition resulting from delays in implementation of a state universal service fund in any decision to postpone establishment of the funding mechanism.If we hesitate now, our inaction at this juncture would not only threaten the preservation of universal service, but would needlessly postpone if not deny all together the benefits of competition to residential and business customers -- particularly in rural areas -- which can only take hold with the establishment of a competitively neutral universal service fund. MCI Reply Brief at p. 1.
Finally, we find merit in the position of MCI on this issue that arguments in favor of
postponement or restraint are puzzling and excessively cautious. MCI cites to § 254(b)(5) which
states: There should be specific predictable and sufficient Federal and state mechanisms to
preserve and advance universal service.
Additionally, MCI cites Section 254(f) which requires that:
Every telecommunications carrier that provides intrastate telecommunications services shall contribute, on an equitable and nondiscriminatory basis, in a manner determined by the State to the preservation and advancement of universal service in that State.
Together these provisions, argues MCI, give special impetus to this Commisison's efforts to
implement universal service reform, rather than providing a reason for the Commission to
postpone its efforts. We also agree with MCI that our actions are consistent with those of the
FCC to-date, and that the principles and the mechanisms described in the Federal Act closely
parallel those already stated in the Commission's proposed regulations.
With the issuance of the Joint-Board Recommended Decision, many of these concerns are now
ameliorated. Neither the Federal Act or the Joint-Board Recommended Decision require every
state to "adhere slavishly to each detail to the federal plan." MCI Reply Brief at p. 9. Nothing in
§ 254 or the Joint Board Recommended Decision requires that states precisely mimic federal
universal service mechanisms. Even if the decision of the FCC ultimately differs in some
respects, Pennsylvania's plan is easily adjustable to accommodate any necessary changes. On
balance, it is better that we address these issues today based upon an up-to-date record and run
the risk of some minimal adjustment, rather than wait and start from scratch, on the basis of a
"stale" record, after the FCC acts.
In summary, we agree with those parties who urge the Commission to move forward with a
Pennsylvania BUS funding mechanism. Moving ahead at this juncture will ensure that the
objectives of both Chapter 30 and the Federal Act are met in a timely manner.
XIX. Conclusion
Effective competition in the various telecommunications markets and in both rural and urban areas in Pennsylvania takes a tremendous step forward today, as do the other objectives of Chapter 30 of the Public Utility Code including infrastructure modernization and universal service. It is our intent to review the actions we take today within the course of the next year to ensure their consistency with the FCC's ultimate decision on the Federal funding mechanism and to also ensure that our actions are promoting the prompt attainment of the important objectives contained in Chapter 30; THEREFORE,
IT IS ORDERED:
1. That a state universal service funding mechanism is necessary to: (1) ensure affordable BUS rates in the future; (2) encourage competition in all areas of the Commonwealth; (3) eliminate and more properly target subsidies in existing rate structures; (4) encourage carriers to meet the mandates of Chapter 30 of the Public Utility Code; and (5) comply with the requirements of the TA-96.
2. That a forward looking, proxy cost model which bases costs upon the costs of an efficient, modern up-to-date network is the most appropriate model for determining BUS costs in Pennsylvania.
3. That Phase II of this proceeding is hereby initiated for the purpose of examining issues relating to the use of a surcharge to collect USF obligations and to update SLU information for purposes of determining USF costs. Parties shall file within 45 days from the entry date of this Opinion and Order comments regarding the recovery of net contributions to the universal service fund. The deadline for filing reply comments shall be 75 days from the entry date of this Opinion and Order. The Law Bureau with assistance from the Bureau of Fixed Utility Services shall prepare a report for Commission consideration within 30 days from the issuance of the FCC Order which implements the universal service mandates of the Federal Act.
4. That all ILECs serving over 50,000 access lines, with the exception of North Pittsburgh Telephone Company, shall file with the Commission updated SLU information for local exchange and EAS only by June 1, 1997.
5. That a separate generic proceeding, to be handled by the Office of Administrative Law Judge, is hereby initiated to examine issues relating to intrastate access charge reform.
6. That within 180 days of the entry date of this Opinion and Order, LECs shall file revised CCL rates with the Commission, to become effective on 60 days' notice.
7. That a BUS rate of $20.00 is established to determine the appropriate level of universal service funding in high cost exchanges.
8. That all LECs shall file a proposed Lifeline plan for low income customers within 60 days of the entry date of this Opinion and Order.
9. That reciprocal compensation rates shall be based upon TSLRIC plus a reasonable contribution to joint and common costs. Interim rates shall be established at the rates set forth in this Order with permanent rates established in MFS III and GTE II in accordance with the guidelines set forth in the body of this Opinion and Order.
10. That a Pennsylvania Universal Service Task Force is hereby established to address universal issues on an ongoing basis as set forth in this Order. The Task Force shall submit a recommendation to the Commission on further refinements to the BUS costing model for Pennsylvania by June 30, 1996. That within 6 months from the entry date of this Opinion and Order, the Task Force shall issue a report and recommendation on implementation of the provisions of § 254 relating libraries, educational institutions and health care facilities.
11. That the Secretary shall mail a copy of this Opinion and Order to all parties appearing on the Commission's official service list at this Docket.
BY THE COMMISSION
John G. Alford
Secretary
(SEAL)
ORDER ADOPTED: December 19, 1996.
ORDER ENTERED: