Lawmakers Eye Changes In Universal Service Fund

Telecom Policy Report, Sept 17, 2003

Sen. Burns Pondering Legislation That Could Increase Fees

Despite a Congressional Budget Office forecast that predicts more than a 100 percent increase in the size of the federal Universal Service Fund by 2005, congressional leaders are now studying ways to further expand the USF. The end result could mean higher phone bills for business and residential users, according to sources closely following this issue.

Late last week, Senate Commerce communications subcommittee Chairman Conrad Burns (R-Mont.) held a behind-closed-doors meeting with telecom industry executives, federal regulators and other lawmakers to discuss proposals for changing the way money is directed to the USF. Conspicuously absent from the Burns-sponsored "USF summit" were representatives of ratepayers. No consumer advocates or representatives of businesses that pay large phone bills were invited to the meeting.

Virtually all of the proposals discussed at the Burns-orchestrated summit would radically alter the USF's funding mechanism. In one case, the meeting's participants reviewed a proposal that would allow regulators to access USF fees on intrastate telephone traffic. Adoption of such a plan would be a dramatic departure from past practices and may even run counter to legislative language found in the 1996 Telecommunications Act.

Another proposal discussed at the meeting would place a USF levy on telephone numbers. In other words, fees associated with universal service would be assessed based on the amount of phone numbers in a given geographic area, as opposed to actual traffic moving along the network.

Interestingly, this very same "numbers" proposal has been a topic of discussion at previous policymaking venues. And equally interesting, the "numbers" plan has been flatly rejected.

Finally, a third proposal discussed at last week's meeting would entail a combination of both the "numbers" plan and the proposal to assess USF fees against intrastate traffic, sources say.

"This was the senator's [Burns'] meeting," Montana Public Service Commission Chairman Bob Rowe told TPR. "I was there to moderate the meeting, and other people were there to offer their best advice. But ultimately, it will be up to the senators to take whatever steps they deem may be necessary."

Rowe, who is also a member of the Joint Federal/State Board on Universal Service, confirmed that the talks did in fact focus on both a "numbers" proposal as well as an "intrastate traffic" plan. "There was a lot of give and take about both sets of options," he said.

A Road Well Traveled

Ironically, the intrastate option was a subject for intense discussion at a meeting this past summer in Denver, Colo., of the National Association of Regulatory Utility Commissioners (NARUC), the organization representing the interests of state-level regulators. In fact, this very proposal was put into the form of a draft NARUC resolution, but it was eventually dropped from the organization's agenda. (Once approved and adopted, NARUC resolutions serve as signals to lawmakers and federal regulators of measures deemed by state officials to be appropriate grist for federal policy.)

There's a statutory question ... In 1996, there were a number of us, including myself, who felt all revenue, including intrastate, was a more appropriate basis [for USF consideration]. In fact, at the time we were looking at various tax cases ... that have allowed states to assess interstate as well as intrastate revenues. At that point, there was a question as to how the Act was interpreted."

Subsequently, a decision related to the federal USF's Schools and Libraries Program (also known as the "E-rate") from the U.S. Fifth Circuit interpreted the Telecom Act's USF provisions to be limited to interstate revenues, excluding revenue generated via intrastate traffic. "The Fifth Circuit effectively settled that question," Rowe said. "So, if you do want to deepen the USF to include intrastate revenue, you would have go back to Congress."

But deepening the USF by assessing fees on intrastate traffic is a topic that has proven to be highly divisive within NARUC. Many within NARUC and elsewhere consider the USF to be already over-funded. Some have even characterized it as "out of control." In fact, the Congressional Budget Office has projected USF spending - even without expanding its present funding mechanism - will more than double from $6 billion to $13 billion by 2004.

Hard Choices For Hard Times

Illustrative of NARUC members' discontent with the current course of policymaking regarding the federal USF is a Sept. 11 letter that Anne Boyle, chair of the Nebraska Public Service Commission, sent to Burns. Boyle is clearly suspicious of any attempt to expand the USF, and told Burns as much:

"As governmental officials, it is incumbent upon us in these financially difficult times, to first re-examine the expenditures that we make before considering whether to increase rates," she said.

If such a proposal would be adopted, the federal government would begin to assess revenues and services that have been expressly and legally assigned to the jurisdiction of the states, she said. Such services are originated and terminated within a state, and in most cases, never cross state boundaries.