V. Universal Service Rate
One of the primary objectives of the Federal Act is to promote competition in the local service market, a monopoly market traditionally served by the existing ILECs. With the advent of competition at the local level there is a further danger that prices charged for basic service in Pennsylvania's high cost areas may escalate to the point that many households within those areas would find basic telephone service cost prohibitive. Pennsylvania has one of the highest subscribership rates in the country. Nonetheless, evidence introduced by the OCA in this proceeding seems to indicate that subscribership rates have actually been declining in Pennsylvania since 1986. With this in mind we face the task of moving toward a competitive future while increasing, or at least preserving, the number of Pennsylvania households with telephone service. To that end, we must recognize that subsidies implicit in existing rate structures maintain affordable basic telephone service in high cost areas of the Commonwealth. Under the Federal Act, we are charged with developing a competitively-neutral funding mechanism to replace those subsidies. The purpose in developing a BUS rate was to ensure that companies receive funding for only that portion of the high cost of serving a particular exchange above what we determine to be a reasonable, yet affordable rate level. This would potentially correct for either of the situations where a company has artificially low or extremely high rates.
In our June 20, 1996 Final-Form Rulemaking Order, the BUS rate was defined as follows:
A rate, established by the Commission, which represents the maximum affordable rate level which can be charged telephone customers for BUS necessary to preserve and increase the penetration rate of telephone service in the Commonwealth.
Id., Annex A, at pp. 3-4.
In determining the support necessary to ensure affordable telephone service within Pennsylvania,
we must establish a BUS rate (to serve as a benchmark), against which actual basic telephone
service prices and costs may be measured. The parties to this Investigation presented
considerable argument on the appropriate BUS rate.
A. Position of the Parties
There is considerable controversy in the record as to the appropriate BUS rate and how high the
BUS rate can increase without a loss in subscribership. Three parties, Bell, GTEN and PTA,
urge us to adopt a BUS rate in the range of $24.00 to $25.00. Bell advocates a BUS rate of
$25.00. Bell argues that the pricing of BUS should reflect the cost of providing that service and
the cost of providing the entire loop and switch network. Bell argues that the price elasticity for
BUS is very low. Bell, therefore, concludes that telephone consumers are relatively insensitive
to rises in price and are more likely to pay more for telephone service than to leave the system.
Using the figures most favorable to it, Bell argues that penetration rates should not decline until
the cost of BUS exceeds $25.00.
GTEN's witness Perry testified that when monthly residential basic rates are priced at $15, $20,
and $30, household penetration increases. When the monthly rates exceed $30, there is a slight
decrease in penetration rates. GTEN Stmt. 7.0 (Perry) at 9-10.
The PCTA advocates a BUS rate based upon a basket of local services. Specifically PCTA argues that a BUS rate should be an affordability benchmark comprised of the following:
(1) the affordability benchmark would equal the upper end of the range of total charges for all local services (i.e., a basket of all local services) that typical residential subscribers in a given area would be expected to pay without subsidy support;
(2) this combination of services will be considered affordable in the aggregate if the prices are equal to or less than the highest, equivalent prices applicable for any exchange with average residential penetration rates;
(3) where the per-line cost of serving an exchange exceeds the affordability benchmark, customers will be charged the benchmark rate, and the difference will be drawn from a universal service fund or similar mechanism; and
(4) the benchmark should be calculated as the highest aggregate rates currently charged for a combination of basic residential services by the dominant LEC anywhere in the LEC's operating territory where the penetration rate is consistent with the statewide average penetration rate.
PCTA Stmt. 1.0 (Townsend) p. 18-22.
PCTA argues that the proposed basket should include not only BUS features, but also, vertical
features and intraLATA toll calling.
MCI suggests using the statewide average basic rate as the BUS rate but allows that the
Commission has the discretion to determine the level at which BUS should be set.
Sprint/United does not advocate a specific BUS rate. Rather, Sprint/United argues that the LECs
should be eligible for a subsidy in the amount of the difference between the economic costs of
providing basic service and the basic service prices that the Commission believes are necessary
for universal service.
In determining what the BUS rate should be, PTA recommends employing the principle of
"comparable rates for comparable service." PTA suggests that Bell Atlantic, as the state's largest
ILEC, serve as the Universal Service price leader with smaller companies adjusting their local
rates up to Bell's level. PTA suggests that 1% of the average household income in Pennsylvania
is a reasonable cost for BUS. Using 1990 Census data, PTA identified the average Pennsylvania
household income as $29,069 per year. Using PTA's 1% pricing, monthly rates for BUS would
be in excess of $24.00. PTA states that this proposed benchmark compares very favorably to
other services, including cable television, a one-way, non-interactive medium, which charges
approximately $20.00 per month. PTA Main Brief at p. 12; PTA Stmt. 1 (DeFalco) at 4.
Finally, PTA suggests that revenues from dial tone services, mileage charges, rate band charges
and any touch tone charges collected by a fund recipient be recognized within or offset from the
affordable rate. However, PTA states that Telephone Relay Service ("TRS") and E911 revenues
should be expressly excluded, inasmuch as neither the associated costs nor the associated
revenues belong to the LEC. PTA Main Brief at pp. 33-24; PTA Stmt. 1 (DeFalco) at 5.
OTS and OCA, on the other hand, argue that based upon the evidence of record, the maximum
BUS rate should be no higher than current basic service rates at this time. OTS Reply Brief at p.
2. The OCA argues that any increase in local exchange rates will result in the loss of customers
from the network and thus will defeat the goal of making telephone service universal in
Pennsylvania. OCA states that all elasticity estimates in the record are in excess of zero.
Consequently this demonstrates that telephone customers will be lost due to any increase in basic
rates, all else being equal. OCA Main Brief at p. 27.
OCA witness Brockway testified that while the potential loss in telephone penetration will affect all Pennsylvania residents, the penetration rates for minorities, the elderly, low income consumers and rural residents currently do not approach the current overall state-wide average rate of 96.8%. Any loss in overall telephone subscribership due to basic service increases will disproportionately impact these telephone users. OCA Main Brief at p. 32; OCA St. 2.0 (Brockway) at 22. Further witness Brockway testified that 13 percent of Pennsylvanians have incomes at or below the federal poverty level. OCA Stmt. 2.0 (Brockway) at 23.
AT&T argues that the total bill, including toll charges, is more important than basic rates.
AT&T states that studies commissioned by Bell indicate that telephone subscribership is affected
to a greater degree by the total bill. AT&T Reply Brief at p. 31. AT&T argues that there is
widespread agreement among the economic witnesses in this case, including Bell's witness Dr.
Kahn, that household telephone subscription decisions are affected by the prices of services other
than basic exchange service, and especially the price of toll service. AT&T Reply Brief at pp.
48-49 (citing Bell Stmt. 2.1 (Kahn) at 23; AT&T Stmt. 2.0 (Mayo) at 26-27; OCA Stmt. 1.2
(Johnson) at 17. AT&T also cites to GTEN witness Perry's testimony to the effect that "the
empirical results show that customers consider the total impact of rate changes on their bill when
considering whether or not to purchase (or retain) a residential phone line." GTEN Stmt. 7.0
(Perry) at 3-4. It also cites to a Bell funded study in Camden New Jersey which found that usage
related charges were responsible for subscribers falling off the network. AT&T Reply Brief at p.
49 (citing "Universal Service From the Bottom Up: A Profile of Telecommunications Access in
Camden, New Jersey," prepared for Bell Atlantic, 1995).
PTA also argues that the Commission should focus on the affordability of customer bills as a
whole; PTA emphasizes that while local rates should increase, toll rates are expected to drop.
PTA argues that telephone customers will be insensitive to a rise in rates and the telephone
service market is relatively price inelastic. PTA therefore concludes that telephone customers
will pay higher rates rather than leave the system.
Bell witness Raimondi and GTEN witness Perry also maintain that there is no impact on subscribership rates as long as the customer's total bill remains the same, regardless of changes in the prices of the component parts. Bell Main Brief at p. 50 (citing Bell St. No. 6.0 (Raimondi) at 7; AT&T St. No. 1.0 (Darrah) at 20; PCTA St. No. 1.0 (Townsend) at 20). In addition, Bell witness Mitchell argues that even if dialtone line rates increase without offsetting rate reductions, customers will drop optional service or decrease toll calling rather than drop off the network. Bell St. No. 4.0 (Mitchell) at 13. Bell goes on to state that there is empirical support for Mr. Raimondi's and Mr. Perry's findings. It cites to the 1986 implementation of the subscriber line charge, when the dialtone line, federal SLC and TouchTone rates for Bell went from an average of $5.15 to an average of $6.52 -- an increase of $1.37 or 27%. The year before the increase, the FCC reported Pennsylvania's universal service penetration rate at 95.3%. The year after the increase went into effect, 1987, the same FCC reports indicated a penetration rate of 96.4% for Pennsylvania.
On the other hand, OTS counters that there was no attempt to show that customers who face
basic BUS increases will be the same as those who receive toll usage decreases. OCA St. 2.1,
pp. 31-33. Thus, OTS also urges that the maximum BUS rate should be no higher than current
basic service rates. OCA Stmt. 2.1 (Brockway) p. 35; OTS Brief at p. 20. OTS argues that since
there is insufficient proof that an increase in the rate for basic services will not result in loss of
customers, the maximum universal service rate should be set at current rates for the present.
OTS Main Brief at p. 5.
B. Discussion
Despite our statement of purpose, some of the parties appear to equate the BUS rate with a cap on the actual rates that may be charged for services included in the definition of BUS in the future. We reiterate that the BUS rate will be used only for the purpose of determining BUS funding levels. The BUS rate serves no function beyond this limited, but important function. We stated in our rulemaking order:
The purpose of the BUS rate(s) is not to dictate the basic universal service price that any provider will offer to telephone subscribers. Instead, the purpose of the basic universal service rate is to establish a benchmark for determining the support included in basic universal service to high cost areas... All the establishment and use of the universal service rate is intended to accomplish is to focus the price competition at a general level which is affordable as a matter of policy.(22)
To assist us in our effort to develop a BUS rate, we requested the parties to present evidence regarding the elasticity of the telephone service market in Pennsylvania.(23) Market elasticity is expressed as a percentage factor which represents customer response or demand to a proposed change in the price of a given service. OCA Stmt. 2.0 (Brockway) at 49; OCA Main Brief at p. 37. A market's elasticity is generally expressed as a percentage change in consumption or demand in response to a one percent change in the price of a particular service. In this instance, the elasticity factor represents the percentage change in the demand for telephone service in response to a one percent change in the price of basic exchange rates. OCA Stmt. 2.0 (Brockway) at 49. A low elasticity factor means that consumers are relatively insensitive to a rise in the price of basic access to the telephone network, and are likely to choose to pay more the service rather than drop off the network. Bell Main Brief at 47 (citing Bell Stmt. 6.0 (Raimondi) at 3).
Those parties submitting evidence of market elasticity for telephone service included the OCA,
Bell and GTEN. OCA witness Brockway reviewed published studies examining the elasticity of
demand for telephone service. OCA St. 2.0, Exhibit NB-4. OCA witness Brockway looked at
results of three different types of studies including: cross-sectional analyses (purchasing
decisions of a sample of consumers faced with different prices for essentially the same service
are analyzed to see if there is a significant relationship between different prices for the service
and purchase of the service), time-series analyses (purchases of basic local exchange service of a
sample from one group of consumers is observed over time and correlated to differences in the
price of the service over time) and conditional demand surveys (customers are asked to state how
they would react if prices for the service in question were raised by various levels. OCA Stmt.
2.0 (Brockway) at p. 51.
Witness Brockway testified that all but two of the results showed an elasticity greater than zero.
The bulk of the results were in the range of -0.002 to -0.12. OCA Stmt. 2.0 (Brockway) at p. 52.
Brockway testified that the results of a conditional demand survey conducted by John Staurulakis
and Patricia Lum on behalf of OPASTCO found elasticities ranging from -0.1265 for the
smallest rate increase ($5) to almost -0.3 percent for the $25 rate increase. OCA Stmt. 2.0 at p.
52.
Bell witness Raimondi's estimate was based upon Dr. Lester Taylor's review of price elasticities
for basic access to the public switched network. Id. at 3. The differences in Brockway's(24) and
Raimondi's penetration findings assuming certain BUS increases is demonstrated by the
following table:
Rate Elasticity = .06 Elasticity = .03
Raimondi Brockway Raimondi Brockway
$8.60 97% 97% 97% 97%
10.75 97% 96% 97% 96%
15.00 96% 93% 97% 95%
25.00 94% 86% 96% 91%
35.00 93% 79% 95% 88%
50.00 91% 69% 94% 83%
OCA Stmt. 2.1 (Brockway) at p. 15.
GTEN witness Perry's estimates from .002 to .005 are slightly lower than the range supported by either Mr. Raimondi or Ms. Brockway. OCA Stmt. 2.2 (Brockway) p. 3.
GTEN witness Perry's lower estimates are based upon an assumption that intraLATA toll rates
would decrease by 33% and that carriers would pass through 68% of interLATA access charge
reductions. OCA St. 2.1 at 17-8.
Overall, Bell's elasticity estimates of 0.03 and 0.06 appear to be the best supported, not suffering
from some of the flaws inherent in the OCA and GTEN estimates. Additionally, OCA witness
Brockway testified that Mr. Raimondi's elasticity estimates were within the range of the
estimates she presented in her direct testimony. OCA Stmt. 2.2 (Brockway) p. 4. She also stated
that the estimates of .03 to .06 offered by Mr. Raimondi in his direct testimony provided a sound
basis for estimating the impact of basic exchange price increases on subscribership in
Pennsylvania. Brockway Rebuttal at p. 1.
The OCA relied on pre-divestiture models to support its elasticity estimates and most
significantly failed to account for the impact of any toll rate reduction. GTEN witness Perry
further testified that a complete analysis requires one to include the effects of price changes for
other goods, such as "complements (used with basic residential service such as toll services) and
substitutes (used in place of, e.g., cellular) for basic residential service when they are found to be
statistically significant. GTEN Stmt. 7.0 (Perry) p. 2. Witness Perry went on to note that one of
the most significant findings in the studies performed by Hausman, Tardiff and Belinfante (1993)
and Belinfante (1990), which are cited by Ms. Brockway, is that toll prices have a significant
effect on penetration rates. GTEN Stmt. 7.0 (Perry) p. 2. On the other hand, GTEN's
assumptions appear to overestimate the reductions expected from intraLaTA toll rates and
included various other unsupported reductions.
While there is evidence in the record that nonbasic rates will decline, we cannot identify with any
precision to what extent the rates may be reduced and the impact upon various subscribers. The
OCA's argument that neither LECs nor the IXCs have demonstrated that any given toll rate
reduction will occur as a result of universal service policies or in response to basic exchange rate
increases, is well taken. OCA Stmt. 2.1 (Brockway) at 30; OCA Main Brief at p. 43.
Nonetheless, there is considerable evidence in the record that reductions in the rates charged for
other services will have an impact upon elasticity estimates and penetration rates and this
evidence cannot be ignored.
OCA conceded that the proposition that the impacts of a basic exchange price increase may be
mitigated by offsetting decreases to toll rates may be correct. OCA's concerns went more to the
amount of any offsetting decreases which were being assumed by some parties. We believe that
some consideration must be given to the customer's total bill and that reduced toll rates are likely
given the commitments of IXCs to reduce rates with access charge reductions. It follows from
the evidence in the record that this will likely have some mitigating effect. While we agree with
those who argue that the exact impact upon subscribership has not been shown, still we cannot
ignore the substantial evidence in the record that there is likely to be some mitigating impact
when establishing the BUS rate. This must be taken into account when determining the
appropriate BUS rate.
Upon consideration of the evidence of the parties on this issue, we believe that a BUS rate of $20.00 (with unlimited local service usage) exclusive of the SLC, provides a good initial starting point for a reasonable rate level for purposes of calculating BUS costs in Pennsylvania. The $20.00 rate is approximately equal to the nationwide average rate for residential service which itself is approximately $20.00. While using the worst case scenario put forward by Ms. Brockway would result in a decrease in subscribership using this rate level, Ms. Brockway's findings do not take into account reduced toll bills which we have already stated should be considered. In this regard, we find Mr. Raimondi's findings to be the most accurate. Using Mr. Raimondi's findings there would be a slight decrease in penetration.
Given our commitment to the preservation or increase of Pennsylvania's telephone service
penetration rate, and the evidence presented in the record on elasticity estimates and penetration
rates, we cannot as a matter of public policy find the BUS rate to be more than $20.00 (including
unlimited local usage) at this time. We find that this rate can reasonably serve as the statewide
BUS rate at this time for purposes of determining carrier funding levels.
Accordingly, we find that a $20.00 for BUS represents a general level which is affordable as a
matter of public policy. This rate of $20.00 is the BUS rate established by this Commission and
represents the maximum affordable rate level which can be charged telephone customers for
BUS necessary to preserve and increase the penetration rate of telephone service in the
Commonwealth, for purposes of calculating universal service support only. We address the issue
of rate rebalancing in a later section of this Order.
VI. Offsets and Calculation of Basic Universal Service Cost and Subsidy
A. BUS Subsidy Offsets
1. Usage Revenues
There was considerable controversy between the parties as to what the appropriate offsets should
be in determining the actual level of the funding mechanism and/or whether BUS is currently
subsidized by other services. First, in determining whether current BUS services were
subsidized, Bell excluded usage and other revenues in determining BUS costs.
A number of parties severely criticize Bell for not including local usage revenues in its BUS
calculation. AT&T points out that Bell has improperly omitted from its subsidy calculations the
revenues that Bell collects from its local exchange service customers with unlimited usage
packages. AT&T states that the vast majority of Bell subscribers are on the unlimited usage
plan. AT&T Main Brief at 46, citing AT&T Stmt. 1.2 (Darrah III) at 14. Similarly, AT&T
argues that Bell also improperly excluded its interstate Common Carrier Line Charge ("CCLC")
revenues from its revenues and its related BUS subsidy calculations. AT&T reasons that if Bell
insists on including 100% of its loop costs to BUS, then, it should include in its related subsidy
calculations all the revenues that Bell receives for the recovery of loop costs in allocating its
jurisdictional operations. Thus, Bell's interstate CCLC and SLC revenues should be included in
the subsidy calculation. Id. at 46-47, citing AT&T Stmt. 1 (Darrah III) at 35-36; AT&T Stmt.
1.2 (Darrah III) at 14.-15.
Bell responds to AT&T stating that even if all of the local usage revenues were to be included in
its subsidy analysis, more than half of its wire centers will still be subsidized. Bell Reply Brief at
29. Bell states that the Commission, to the extent it feels bound by the Federal Act on this issue,
must weigh the popularity of unlimited usage against other criteria, including whether this
premium service is "essential". Bell Reply Brief at p. 38. Bell states that the NPRM issued by
the FCC on March 8, 1996, makes no recommendation about the inclusion of usage in the
definition of universal service. Bell Reply Brief at p. 38. Furthermore, Bell argues that the
Federal CCLC is considered as "...one of many potentially unsustainable sources of cross-subsidy funds"
and, thus it has not been included in its subsidy calculation because contribution
levels "from access services should never be included in a universal service subsidy calculation
because they do not affect [Bell's] obligation to provide universal service." Id., citing Bell Stmt.
3.2 (Emmerson) at 8.
Teleport points out that Bell included in its budget usage option a bare bones package which
provides subscribers with a usage allowance. Teleport Main Brief at p. 14. As OTS notes it is
not unreasonable to presume that many customers will exceed the 3.57 calls to which the user is
entitled under the budget usage option. OTS Cr. Ex. No. 9; Teleport Main Brief at p. 14. Mr.
Mitchell testified that a small percentage of customers choose the budget option. Tr. 967;
Teleport Main Brief at p. 15.
Many others support the inclusion of usage revenues in calculating a universal service subsidy.(25)
Bell conceded that including usage revenue would dramatically reduce the Company's claimed
subsidy amount on a wire center basis. Teleport Main Brief at pp. 15-16 (citing OTS Cr. Ex. No.
8). Inclusion of usage revenue is also supported by current subscription rates. Tr. 969-970; OTS
Main Brief at p. 14. The average residential local call count for a survey of GTEN measured
residential customers in Pennsylvania was quite substantial. Tr. 281-282; OTS Main Brief at p.
14.
We note that In our June 21, 1996, Final-Form Rulemaking Order at Docket No. L-00950105 we stated the following which directly impacts upon this issue:
Regardless, the Commission's initial definition of BUS, as supported by the input of interested parties that did file comments to our June 15, 1994 Order, was intended to include unlimited local usage within a local calling area. Accordingly, Bell and PTA are essentially requesting reconsideration of the initial definition. Since the definition of BUS is not part of this rulemaking docket, it would be inappropriate to even consider modifying our definition at this time. Furthermore, Bell's and PTA's proposed modification is not consistent with public policy concerns which require the definition of BUS to include all essential telecommunications services. See Section 1324 of the Public Utility Code, 66 Pa.C.S. §1324, which requires all local exchange carriers to offer unlimited usage within a local calling area on a flat rate basis -- demonstrating the General Assembly's view that unlimited usage is an essential service.
Rulemaking to Establish a Universal Service Funding Mechanism, Docket No. L-00950105, Final-Form Rulemaking Order entered June 21, 1996, n. 2, at 5, emphasis added.
It is apparent that Bell's views that BUS should include a very limited amount of local usage, or
none at all, must fail. Consequently, it would have been appropriate for Bell to have included
local usage revenues in its BUS subsidy calculations. Even if the inclusion of the local usage
revenues in Bell's subsidy calculation were to produce the result stated by Bell, namely that a
large number of its wire line centers would still be subsidized, this Commisison would have had
better information regarding Bell's subsidy calculation results.
2. Interstate CCLC and SLC
Once again, there was considerable controversy regarding Bell's exclusion of interstate CCLC
revenues when determining the level of BUS subsidy. AT&T witness Darrah testified that if
100% of the loop costs are attributed to the cost of local exchange service, the corresponding
revenue analysis must also include the revenues that the LECs receive as interstate support for
the loop -- specifically, the SLC and the interstate CCLC charges. Witness Darrah states that if
the SLC and interstate CCLC were not included in the revenue analysis, the LECs would be paid
twice for covering the same costs which according to Darrah would give them another significant
revenue advantage in the local exchange marketplace. AT&T Stmt. 1.0 (Darrah) at p. 35.
Like Bell, GTEN counters that it would be inappropriate to reflect current contributions to
universal service from above-cost services because there is no guarantee that these contributions
will continue in a competitive environment. GTEN Main Brief p. 10.
It is a well known fact that the interstate CCLC as well as the federal SLC are currently designed
to recover 25% of Bell's non-traffic sensitive costs that are allocated to its interstate jurisdictional
operations. Although Bell has utilized the interstate SLC revenues in its subsidy calculation, it
has not done the same with its interstate CCLC revenues. Indeed, Bell's justification as stated by
its Witness Emmerson on rebuttal, focuses on whether the contribution levels from the interstate
CCLC revenue stream for Bell's operations is sustainable. Bell Stmt. 3.2 (Emmerson) at 8.
By the same token, it can be argued that Bell's revenue stream and associated contribution levels
of the interstate SLC may be totally and equally unsustainable as well. For example, under
conditions of local exchange competition, when Bell end-users are or will be changing local
exchange service providers, the interstate SLC will not be paid to Bell. Thus, the interstate SLC
revenue stream may be equally "unsustainable"; however, Bell did include it in its BUS subsidy
calculations.
This also leads to the perennial mismatch of non-traffic sensitive ("NTS") cost assignments and
the associated revenue recovery. Although Bell assigns 90%-100% of its loop costs to BUS, it
excludes the interstate CCLC from the revenue side of its NTS cost recovery and BUS subsidy
calculation. Bell's justification apparently relies on the fact that the interstate CCLC is associated
with the provision of switched carrier access service, which is not a per se component of
our
BUS definition. However, this justification ignores the fundamental precept that
"access" is a
bidirectional concept. ILECs, such as Bell, do not only provide "access"
for IXCs to their end-user customers, they also provide access
from the end-users to their preferred IXCs for interstate
toll calls via the ubiquitous pathways of the ILECs' local loop plant. Accordingly, the associated
25% proportion of the ILEC loop costs that are allocated to the interstate jurisdiction are
jointly
recovered in terms of ILEC CCLC and SLC revenues. It is thus obvious that Bell's subsidy
calculations should have included its interstate CCLC revenues.
3. Yellow Pages Revenues
Finally, some witnesses suggest that the Commission should consider yellow pages revenues in
determining the BUS subsidy. For instance, OCA Witness Johnson suggests it would be
appropriate to include yellow page advertising revenues to support universal service in the future.
GTEN responds that the net revenues from yellow page advertisements was allowed to be
retained by the LECs for ratemaking purposes in 1984, but that it is not appropriate in 1996 and
cannot be relied upon to support universal service in the competitive local exchange market of
the future. GTEN Stmt. 1.3 (Williams) at p. 18. Witness Williams further argued that if an
allowance for the contributions from yellow page advertising were to be made for universal
service funding purposes, such a funding mechanism would not be competitively neutral. The
incumbent LECs that are providing yellow page advertising along with their telephone
directories would be contributing all of their yellow page profits to universal service, while
CLECs would be contributing nothing. Further, witness Williams argues that it would not be
good public policy to assess one provider of yellow page advertising on the basis that it also
provided incumbent wireline local telephone service, while exempting all other providers of the
same service from contributing to universal service. GTEN Stmt. 1.3 (Williams) at p. 19.
We agree that yellow pages revenues should not be included again for purposes of determining
the level of BUS subsidy. Yellow pages revenues are already included in the rate levels of
ILECs and to include them once again for purposes of calculating BUS revenues would result in
"double-counting."
B. Offsets to BUS Cost
1. Federal Fund Receipts
Witness Darrah also testified that for smaller LECs, state separated costs should also be reduced
by any costs allocated to the interstate High Cost Fund and weighted dial equipment minute
allocations, since in both cases revenues are returned to the company by way of interstate access
charges and thus should not be recovered twice. AT&T Stmt. 1.0 (Darrah) at p. 36.
GTEN witness Williams argues that it would be impossible for the Commission to identify the explicit US funding amounts if such amounts have been offset with the current implicit funding amounts. Witness Williams states that in order to calculate the funding amount the Commission should: 1) calculate the revenues that would be produced if universal service was provided at unconstrained market prices, 2) subtract the revenues that customers are required to pay to obtain universal service, and 3) subtract the net amount of explicit high cost funds received through the current federal fund. GTEN Stmt. 1.3 (Williams) p. 31.
GTEN states that the high cost segment of the current Federal program consists of two parts, the
USF and the Long Term Support mechanism.
We agree that the funds received from the Federal funding mechanism should be used to offset the amounts Pennsylvania carriers ultimately receive from the state funding mechanism.
With these assumptions in mind, and given the costs calculated under the proxy model on a CBG basis with a $20.00 BUS rate, the estimated net revenue impacts per company are set forth in Exhibit A attached.