December 1996
(As mandated by 1991 Public Act 179, Section 202(e))
INTRODUCTION
After months of public hearings and legislative debate, Governor Engler signed Senate Bill 722 on November 30, 1995. The law, Public Act 216 of 1995 amended Public Act 179 of 1991, the Michigan Telecommunications Act (MTA).
The amendments added by PA 216 were designed to foster increased competition in the local telephone market and to protect consumers from unaffordable prices. Section 101(2)(a) specifically provides that one of the purposes of the act is to "ensure that every person has access to basic residential service." This section reaffirms a long-standing public policy goal which over the years has become known and referred to as "universal service."
Governor Engler signed Senate Bill 722 prior to the enactment of new federal telecommunications legislation which mandates that an entirely new federal universal service regime be established by May 1997 which includes access to advanced services for eligible health care providers in rural areas, educational providers and libraries. The new federal law will also bring about access charge reform and new interconnection policies. Both of these issues further impact universal service.
Recognizing that changes in federal telecommunications policies were being debated in Congress in 1995, state legislators adopted an amendment offered by Senator Walter North that required the Michigan Public Service Commission (MPSC) to create a task force to study issues related to universal service. The task force was charged with issuing a report to the Legislature and Governor by December 31, 1996 containing its findings and recommendations.
In light of the fact that the need for and scope of a Michigan Universal Service Program is largely dependent upon the extent to which federal policies are revised, the task force followed activities on the federal level very closely. Unfortunately, a significant amount of work still faces federal regulators as they strive to meet their May 1997 deadline. Consequently, some of the findings and recommendations contained in this report are tentative in nature. The task force has attempted to identify several key issues that should be part of any further discussions of establishing a state universal service fund.
STATE LEGISLATIVE MANDATE
Section 202(e) of PA 179 requires the MPSC to do the following:
"Create a task force to study changes occurring in the federal universal service fund and the need for the establishment of a state universal service fund to promote and maintain basic local exchange service in high cost rural areas at affordable rates. The task force shall issue a report to the legislature and governor on or before December 31, 1996 containing its findings and recommendations. The task force shall consist of all of the following members:
(i) The chairperson of the commission.(ii) One representative from each basic local exchange provider with 250,000 or more access lines.
(iii) Four representatives from providers who, together with affiliated providers, provide basic local exchange or toll service to less than 250,000 end users in this state.
(iv) Two representatives of other providers of regulated services.
(i) One representative of the general public.
PA 179 PROVISIONS RELATED TO UNIVERSAL SERVICE
In addition to section 202(e), PA 179 contains items that relate to the provision of universal service and the simultaneous promotion of competition within Michigan.
Section 101(2) sets out the purposes of the Act, including:
"the provision of an access line and usage within a local calling area for the transmission of high-quality 2-way interactive switched voice or data communication."
COMPOSITION OF THE MICHIGAN UNIVERSAL SERVICE TASK FORCE
On April 26, 1996, the MPSC created of the Michigan Universal Service Task Force. The task force--selected from nominations submitted by the telecommunications industry and from other interested parties--was comprised of the following members:
TASK FORCE MEETING SCHEDULE
The task force worked throughout the year to prepare its report. The following schedule reflects the official meetings of the task force:
At its organizational meeting on May 15, John Strand was selected to serve as Chairman by a unanimous motion of the members of the task force. Two workgroups were established to focus on specific topics.
The "Federal Working Group" consisted of Brenda DeHorn, Hal Hively, Robert Orent, Linda Schatz and John Strand. Other volunteers included Tim Collins, Bob Debroux, and Tim Hoffman.
The "Other States Working Group" consisted of Jerry Allen, Martin Clift, Cathy Conway, John Strand, and Gail Torreano. Other volunteers included Tim Hoffman and Mitch Proctor.
TASK FORCE MISSION STATEMENTS
The task force adopted the following mission statement to guide its activities:
"To provide the Michigan Legislature and Governor, by December 31, 1996, with a comprehensive report of the most current federal universal service program developments, and to identify, to the greatest extent possible, the most significant factors that should be considered by the Legislature and Governor in determining the need for a meaningful universal service program for the state that will be compatible with the new federal program."
The task force also adopted mission statements for each of its workgroups. The Federal Working Group's mission statement was:
"To provide a detailed account of federal activity related to universal service, including FCC and Joint Board timetables, specific legislative mandates which may impact state decision making, and Joint Board recommendations which may significantly impact state action related to the creation of a state universal service program."
The Other States Working Group mission statement was:
"To provide legislators and the governor with a broad perspective of potential options by summarizing universal service policy mandates approved by other state legislatures or regulatory bodies."
BACKGROUND
History Of Universal Service
The term 'universal service' was first used by Theodore Vail, President of AT&T, in the company's 1907 annual report. In fact, the slogan used by AT&T during that time period was "One System, One Policy, Universal Service." However, the meaning given to the term by Vail was a far different one than the meaning associated with the term today. The early 1900s was a time of vigorous competition in the telephone industry between AT&T and the independent carriers. This form of competition, known as 'dual service,' was quite different from competition today, because AT&T and the independents refused to interconnect with each other. In this context, Vail conceived of universal service as an integrated monopoly which could interconnect with all telephone users.
Universal service in Vail's mind had three main principles. First, the value of telephone service grew as the number of subscribers grew. Second, universal telecommunication required centralized control and coordination; that is, service should be provided by, or under the control of, a single firm. Finally, monopoly, and not the interchange of traffic among competing systems, was the best way to achieve universal service.
Eventually, Vail's concept of a unified telephone network won the support of the industry, the public and the regulators. The Willis-Graham Act of 1921 removed the last legal obstacles to consolidation by, among other things, exempting telephone companies from the Sherman Antitrust Act.
By the late 1960s, regulators began to rely on the separations and settlements process to shift the embedded1 The Joint Board states that the term "embedded costs" is often used to refer "to a carrier's historic loop or switching costs" and it is "synonymous with the terms 'booked costs' and 'reported costs'." (Footnote 600) costs to the interstate jurisdiction so that service could be provided at lower prices. In other words, rates for some services like long distance and access were set to provide the additional revenue required to achieve the revenue requirement of the providers so as to recover the embedded costs of providing local service.
The current definition of universal service occurred in the 1970's when these support practices were threatened by competition. Competitors were able to target the routes and services which were overpriced and rely on interconnection with the monopoly network to access routes and services which were subsidized. In this environment universal service was linked to the idea of a regulated monopoly as a way to make telephone service universally available and affordable.
Prior to the passage of the Telecommunications Act of 1996 and the FCC's Order in Docket 96-45, universal service was not expressly defined under federal or state laws. Universal service in the telecommunications industry had come to mean access by all Americans to basic voice grade service at universally affordable rates. Such access was provided by a local exchange line and generally included access to directory assistance, operator services, long distance, and emergency services.
THE SCOPE OF UNIVERSAL SERVICE TODAY
Today, universal service has come to mean much more than just the availability and affordability of telecommunication services. In addition to keeping prices affordable for all local exchange customers, universal service incorporated the public policy goal of targeting support to low-income customers through programs known as Lifeline and Link Up America.
Rural and high cost areas of the country posed special challenges to those companies with the obligation to serve all customers within a specified geographic area at prices allowed by regulators. To address these challenges, a system of "cost allocation mechanisms" was created by regulators to facilitate the provision of local exchange service at affordable prices. Most notable among these are the Universal Service Fund, Long Term Support, Access charges, Lifeline and Link Up America.
Now, under provisions of the telecommunications act of 1996, new beneficiaries of universal service support have been identified--namely schools, libraries and health care providers. The inclusion of these entities and the scope of services anticipated will add substantially to the size of any universal service program.
So rather than viewing universal service as one specific program, it is better described as an integrated system of mechanisms, each designed to meet a specific need. Each component of the program is directly or indirectly linked to every other component. Consequently, making changes to one or two components will have an impact on the other components, and ultimately the whole universal service system.
Universal Service In Michigan
The universal service policies adopted by state and federal policy makers recognize that the cost of providing basic telephone service is generally much higher in rural areas than it is in urban areas. Three of the primary factors that have historically contributed to higher rural costs are:
As an example, look at two telephone exchanges in our state. In the Upper Peninsula, the Hiawatha Telephone Company provides service to 100 customers in its rural Deer Park exchange, located in Luce County. This exchange covers roughly 500 square miles, which translates into 0.2 customers per square mile. Compare this to the Grand Rapids exchange which currently has seven licensed local service providers--ACI, Ameritech, AT&T, Brooks Fiber, LCI, MFS, and Sprint. This exchange covers approximately 240 square miles and has nearly 243,000 customers--or 1,012.5 customers per square mile. It is easy to see that providing services to rural customers is going to cost more than providing it to urban customers.
With strong universal service policies in place, 95.5% of Michigan's residents have telephone service in their homes, according to a report by the FCC. This subscribership level exceeds the national average of 93.9%. It is important to note that subscribership levels are delicate and can change as support systems change.
Changes Mandated By The Telecommunications Act Of 1996
The universal service policies that have created and distributed support to rural, residential and other designated customers are expressly continued under the Telecommunications Act of 1996. Specifically, the Act requires that:
STATUS OF FEDERAL PROCEEDINGS
Federal-State Joint Board
Under Section 254(a)(1) of the Telecommunications Act of 1996, the Federal Communications Commission (FCC) was required to appoint three FCC commissioners, four state commissioners, and one state utility consumer advocate to a joint federal/state board. The FCC appointed the following people on March 8, 1996:
FCC Proceedings
The Telecommunications Act of 1996 gives the FCC six months from the date of the Federal-State Joint Board's recommendations--or May 8, 1997--to take action. After that time, the FCC must act on any additional board recommendations within one year of their receipt.
On November 18, 1996, the FCC requested comments on the Joint Board's recommendations be submitted by December 16, 1996. Reply comments must be filed by January 10, 1997.
In addition to its consideration of the Joint Board's recommendations, the FCC is in the process of reforming other major components of the universal service "patchwork." FCC Chairman Reed Hundt has described the FCC's efforts as a "trilogy." The trilogy includes interconnection, universal service reform, and access charge reform. In its order adopted August 1, 1996, the FCC states that "universal service reform is vitally connected to the local competition [interconnection] rules we adopt today." (par. 7) "It is also well-recognized that access charge reform is intensely interrelated with the local competition rulesand the reform of universal service." (par. 8) "Only when all parts of the trilogy are complete will the task of adjusting the regulatory framework to fully competitive markets be finished." (par. 9)
JOINT BOARD RECOMMENDATIONS--IMPACT ON MICHIGAN
Until the FCC acts on the Federal-State Joint Board's recommendations, it is impossible to determine exactly how Michigan's telecommunications customers will ultimately be affected by a new universal service system. The Task Force has identified numerous references in the Joint Board's recommendations to the roles that states will be expected to play in the future.
Definition Of Universal Service: What Services To Support
The Joint Board recommended that the universal service fund mechanism support the following services/features:
States are recommended to determine the need for a transition period for particular carriers who may need to make upgrades to provide single-party service, but only to the extent carriers can meet a heavy burden that such a transition period is necessary and in the public interest. (par. 47)
States are deemed to be in the best position to determine the local usage component that represents affordable service within their jurisdictions even though the Joint Board recommends that the FCC determine a level of local usage for purposes of determining the amount of federal universal service support.(par. 49)
Affordability
Carriers Eligible for Universal Service Support
States have a very active role in determining whether carriers meet the eligibility criteria contained in section 214(e)(1) (e.g., carrier of last resort requirements). Also, Section 214(e)(4) requires an eligible carrier to notify the state of that carrier's intent to relinquish its designation as an eligible carrier and also requires the state commission, before permitting the carrier to cease providing service, to ensure that the remaining carriers can serve the relinquishing carrier's customers. (pars. 156-157)
Definition of Service Areas
States have the responsibility to designate service areas for non-rural telephone company areas that are of sufficiently small geographic scope to permit efficient targeting of high cost support and to facilitate entry by competing carriers. (par. 175) It is recommended rural companies should initially continue to use their current study areas.
Rural, Insular, And High Cost
Calculation of Cost
States are being asked to work with the FCC to develop an adequate proxy model that can be used to determine the forward-looking economic cost of providing supported services in a particular geographic area, and in calculating what support, if any, a carrier should receive for providing services designated for universal service support. (par. 268)
Competitive Bidding
The joint board recommends that the FCC not adopt any competitive bidding plan at this time. However, states are being asked to work with the FCC to explore the possibility of using competitive bidding for determining the level of federal universal support. (par. 341)
Support For Low-Income Consumers
The Joint Board proposed that the existing Lifeline and Link Up America programs be modified to comply more fully with the federal legislative mandate to provide low-income universal service support in all areas of the nation. The Joint Board also recommended that these programs be modified so that they are competitively neutral.
States are recommended to determine whether to require carriers to provide free access to information about telephone service for low-income consumers, because they are most familiar with the number of consumers in their state affected by charges for these calls and may do so through their own universal service support mechanism. (par. 390)
Reevaluation of Existing Low-Income Support Programs
States need to determine the level, if any, of support it wishes to contribute to the Lifeline program, beyond the recommended $5.25 federal amount, and thus receive additional federal support equal to one half of any support generated from the intrastate jurisdiction, up to a maximum of $7.00 in federal support. (par. 419)
States are given the responsibility to determine whether or not a carrier that wishes to participate in the Lifeline program offers a Lifeline rate to qualified individuals. (par. 424)
Schools And Libraries
The Joint Board recommended that the FCC adopt rules that provide schools and libraries with the maximum flexibility possible to purchase a package of telecommunication services that best meets their needs. Eligible schools and libraries would be able to purchase at a discount any telecommunications service, internal connections among classrooms, and access to the Internet. The proposed discounts range from 20% to 90% for eligible schools and libraries, with higher discounts going to those located in economically disadvantaged or high-cost areas. The fund for schools and libraries will be capped at $2.25 billion per year, with unused funds in any year carrying forward for use and distribution in subsequent years.
Existing Special Rates
The Joint Board finds that to the extent that a state desires to supplement the discount financed through the federal universal service fund by permitting its schools and libraries to apply the discount to the special low rates, its actions would be consistent with sections 254(h) and 254(f). Furthermore, the Board believes that it would also be permissible for states to choose not to supplement the federal program and thus prohibit its schools and libraries from purchasing services at special state-supported rates if they intend to secure federal-supported discounts. (par. 571)
Restrictions Imposed on Schools and Libraries
The Joint Board recommends that state commissions undertake measures to enable consortia of eligible and ineligible entities to aggregate their purchases of telecommunications services and other services being supported through the discount mechanism, in accordance with the requirements set forth in section 254(h). (par. 596)
The Joint Board recommends that schools and libraries be expected to comply with three bona fide request requirements: 1) those requesting support for services certify that they will be able to deploy any necessary hardware, software, and wiring, and to undertake the necessary teacher training required to use the services effectively; 2) schools and libraries must submit their requests for services in writing to all service providers certificated by the state public utilities commission to serve the area in which the school or library is located, particularly in combination with the voluntary electronic data bank proposal of the Council for Educational Development and Research; 3) every school or library that requests services eligible for universal service support should be required to submit to the service provider a written request for services.
The Joint Board recommends that the request should be signed by the person authorized to order telecommunications and other covered services for the school or library, certifying the following under oath: (1) the school or library is an eligible entity under section 254(h)(4); (2) the services requested will be used solely for educational purposes; (3) the services will not be sold, resold, or transferred in consideration for money or any other thing of value; and (4) if the services are being purchased as part of an aggregated purchase with other entities, the identities of all co-purchasers and the portion of the services being purchased by the school or library. (pars. 599-603)
Administration Of Support Mechanisms
Revenues Base for Assessing Contributions
States are asked to comment on the appropriate revenue base for the modified high cost and low income assistance programs i.e., should both the intrastate and interstate revenues of providers of interstate telecommunications services be assessed or interstate revenues only. (par. 817)
FINDINGS AND RECOMMENDATIONS
Michigan Universal Service Policy
The Task Force believes that the following universal service policy should exist for all Michigan citizens:
Final FCC Decisions Needed To Adequately Address State Needs
Until the FCC takes definitive action on the Federal-State Joint Board's recommendations, there are a number of very important unresolved issues that may significantly impact and delay Michigan's ability to thoroughly address its universal service needs. If changes at the federal level shift costs back to the states, then state policy makers will need to take action to deal with this situation. Proceedings to gather additional information and to determine an advantageous course would be appropriate.
Major Issues To Watch
The Task Force has reviewed the Federal-State Joint Board's 500-page recommendation document and has identified a number of issues that merit close attention by state policy makers. While many of these issues will undoubtedly undergo changes by the FCC--and ultimately the courts--before they are finally resolved, the Task Force believes they will ultimately play a critical role in the development of Michigan's universal service policies.
CONCLUSION
The legislative charge for the task force was to "study changes occurring in the federal universal service fund and the need for establishment of a state universal service fund." Given the uncertainty surrounding the FCC's final universal service decisions, the Michigan Universal Service Task Force has attempted to compile a report that provides useful background on the origin and status of universal service policies, and that identifies the key items in the federal universal service debate.
The Task Force believes that universal service has benefited Michigan's citizens and that strong universal service policies are important to our state's economic and social well-being. It is essential that state policy makers to follow federal developments closely. Decisions made by the FCC will potentially impact every person in our state.
Therefore, with the agreement of the legislature and governor, the task force will continue its work as federal policies evolve. By continuing its monitoring, task force members will be in a position to provide policy recommendations and advice as the need arises. It is recommended that task force members be invited to testify before the appropriate legislative committees later in 1997, when federal policies are clearer.
This report is submitted with the unanimous support of the Michigan Universal Service Task Force membership. We offer our assistance to the legislature and governor as they work to maintain strong universal service policies in Michigan.
APPENDIX A: Federal-State Joint Board Recommendations--Executive Summary
JOINT BOARD ADOPTS UNIVERSAL SERVICE RECOMMENDATIONS
(CC DOCKET 96-45)
The 1996 Act directs the Federal-State Joint Board to adopt new universal service support mechanisms that are specific, predictable, and sufficient to advance the universal service principles enumerated in the Act. The Act enumerates principles upon which the Joint Board members have based their recommendations. The principles enunciated in the Act are as follows:
The Joint Board recommends basing universal service policies on the principles enumerated in the Act, as well as the additional principle of competitive neutrality. By "competitive neutrality," the Joint Board means that all providers of interstate telecommunications services should make an equitable and nondiscriminatory contribution to the preservation and advancement of universal service. The Joint Board believes that the principle of competitive neutrality encompasses the concept of technological neutrality, and that the principle of competitive neutrality should be applied to every recipient of and contributor to the universal service support mechanisms, regardless of size, status or geographic location.
Today's recommendations are based upon eight months of deliberation over a 40,000-page record, in a proceeding marked by unprecedented participation by industry, education, consumer, health care, and individual commenters. The Joint Board's recommendations, in summary, are as follows:
Services included in Universal Service Support
The Joint Board recommends that support be provided for these services:
The Joint Board recommends, as described more fully below, providing support for access to additional services for low-income consumers, including toll blocking and toll limitation to help low-income consumers control their long distance phone bills.
Affordability
Whether local telephone service is affordable depends upon several factors apart from local rates. Local calling area size, income levels, cost of living and other socio-economic indicators help in assessing affordability. The Joint Board recommends that the states, in their rate-setting roles, make the primary determination as to whether rates are affordable and for taking any necessary actions should they determine the rates are not affordable. The FCC will also assess affordability by continuing to monitor subscribership levels.
Carriers Eligible for Support
The Joint Board recommends that any telecommunications carrier, including, for example, cellular or PCS providers, regardless of the technology that it uses, that meets the criteria for eligibility spelled out in the Act, be eligible to receive universal service support. The statutory criteria for receiving universal service support are as follows:
Programs for Low-Income Consumers
Over ten years ago, the Commission established two programs that are currently available to assist low-income consumers. The Lifeline program reduces qualified low-income consumers' monthly phone charges with matching federal and state funds. A state may choose not to participate in the Lifeline program. Currently, 41 states, the District of Columbia, and the U.S. Virgin Islands participate in Lifeline.
The Link Up program provides federal support that reduces qualified low income consumers' initial local telephone connection charges by up to one half. Link Up is currently funded by contributions from interexchange carriers. Support is currently available only to incumbent wireline local exchange carriers.
The Joint Board recommends revising the Lifeline and Link Up programs in the following manner:
Rural, Insular and High Cost Areas
The Joint Board recommends that support for carriers with high costs (except rural carriers) be based on the difference between cost estimates generated by a cost proxy model minus a nationwide benchmark. The Joint Board also states that it is desirable that the benchmark be based on the amount the carrier would expect to recover from other services to cover the cost of providing supported services in rural, insular, and high cost areas, but final determination of the methodology for selecting the benchmark must also consider the revenue base for universal service contributions.
Rural carriers would not immediately use a proxy model to determine their cost of service. This support would be frozen at current levels based on their embedded per-line costs for a three-year period. Most rural carriers will then move to the use of a proxy model over a three-year period. Rural carriers in Alaska and insular areas will continue to use frozen embedded per-line costs until further review.
The Joint Board further recommends that the FCC continue to work with the states to develop an adequate proxy model for determining costs. The Commission will identify the chosen proxy model when it adopts final rules implementing the Joint Board's recommendations.
Subscriber Line Charge and Carrier Common Line Charge
The Joint Board finds that Long Term Support (LTS) payments, which currently serve to equalize carrier common line (CCL) charges among incumbent local exchange carriers by lowering some and raising others, constitute an impermissible implicit support mechanism. The Joint Board recommends that rural local exchange carriers currently receiving Long Term Support instead receive a comparable payment from the new universal service support mechanism.
The Joint Board recommends that the prescribed interstate subscriber line charge (SLC) for primary residential lines and single-line business lines not rise. In the event that the Commission implements a rule assessing carriers' universal service contributions based on all telecommunications revenues regardless of jurisdictional classification, we recommend that the benefits from CCL reductions due to elimination of the payphone element and moving LTS to a different collection base be apportioned equally between primary residential and single-line-business subscribers to local exchange service, on the one hand, through a reduction in the SLC cap for those lines, and interstate toll users, on the other hand, through lower CCL charges.
Schools and Libraries
The Joint Board recommends that eligible schools and libraries be able to purchase at a discount any telecommunications services, internal connections among classrooms, and access to the Internet. The Joint Board recommends providing higher discounts for economically disadvantaged schools and libraries and those entities located in high cost areas. Discounts are a minimum of 20% and range from 40-90% for all but the least disadvantaged schools and libraries. Total expenditures for universal service support for schools and libraries is capped at $2.25 billion per year, although any funds not disbursed in a given year may be carried forward and also disbursed.
Services for Health Care Providers
The Joint Board estimates that approximately 9,600 health care providers in rural areas in the United States will be eligible to receive telecommunications services supported by the universal service mechanism. Health care providers include teaching hospitals, medical schools, community health centers, migrant health centers, mental health centers, not-for-profit hospitals, local health departments, rural health clinics and consortia or associations of any of the listed providers.
The Joint Board recommends that the Commission seek further information before designating the exact scope of services to be supported for rural health care providers. The Joint Board also recommends that the Commission seek further cost information on the cost to rural health care providers of Internet access and infrastructure development needed to bring to rural health care providers telecommunications services available to urban health care providers.
Administration of the Universal Service Support Mechanisms
The Joint Board recommends that the FCC appoint a universal service advisory board, including state and FCC representatives, to select a neutral, third-party administrator to administer the collection and distribution of the support mechanisms. Because support for schools and libraries will be implemented sooner than support for high cost areas or low-income consumers, the Joint Board also recommends the appointment of a temporary administrator of support for schools and libraries and rural health care providers.
The Joint Board recommends that all telecommunications carriers that provide interstate telecommunications services be obligated to contribute to universal service. Internet and on-line service providers would not have to contribute to universal support mechanisms unless they provide telecommunications services, in which case they would contribute an amount proportional to the revenues they receive from telecommunication services. The Joint Board recommends that contributions be based on carriers' gross revenues from telecommunications services net of payments to other carriers for telecommunications services.
Finally, the Joint Board recommends that universal service support mechanisms for schools, libraries, and rural health care providers be funded by assessing both the intrastate and interstate revenues of providers of interstate telecommunications services. The Joint Board makes no recommendation concerning the appropriate funding base for the modified high cost and low income assistance programs, but does request that the Commission obtain additional information, particularly from the states, regarding the assessment method for these programs.
Common Carrier Bureau Contacts: John Morabito at (202) 418-0800 and Anna Gomez at (202) 530-6001.
APPENDIX B: Provisions of Federal Law Related To Universal Service
Universal Service Principles -- The Act lays out the following principles that the FCC and the joint board must follow:
Quality and Rates -- Section 254(b)(1) states that quality services should be available at just, reasonable, and affordable rates.
Access to Advanced Services -- Section 254(b)(2) states that access to advanced telecommunications and information services should be provided in all regions of the Nation.
Access in Rural and High Cost Areas -- Section 254(b)(3) states that consumers in all areas of the Nation should have access to services that are reasonably comparable to those services provided in urban areas and available at reasonably comparable rates.
Equitable and Nondiscriminatory Contributions -- Section 254(b)(4) states that all providers of telecommunications services should make an equitable and nondiscriminatory contribution to the preservation and advancement of universal service.
Specific and Predictable Support Mechanisms -- Section 254(b)(5) states that there should be specific, predictable and sufficient federal and state mechanisms to preserve and advance universal service.
Access to Advanced Telecommunications Services for Schools, Health Care, and Libraries -- Section 254(b)(6) states that elementary and secondary schools and classrooms, health care providers, and libraries should have access to advanced telecommunications services as described in subsection (h).
Additional Principles -- Section 254(b)(7) states other principles that are necessary and appropriate for the protection of the public interest, convenience, and necessity can be established by the joint board and the FCC.
Rate Averaging -- Section 254(g) states:
"Within 6 months after the date of enactment of the Telecommunications Act of 1996, the Commission shall adopt rules to require that the rates charged by providers of interexchange telecommunications services to subscribers in rural and high cost areas shall be no higher than the rates charged by each such provider to its subscribers in urban areas. Such rules shall also require that a provider of interstate interexchange telecommunications services shall provide such services to its subscribers in each State at rates no higher than the rates charged to its subscribers in any other State."
Lifeline Assistance -- Section 254(j) states:
"Nothing in this section shall affect the collection, distribution, or administration of the Lifeline Assistance Program provided for by the Commission under regulations set forth in section 69.117 of title 47, Code of Federal Regulations, and other related sections of such title."
Authority Granted To States
Preserving and Advancing Universal Service -- Section 254(f) states:
"A State may adopt regulations not inconsistent with the Commission's rules to preserve and advance universal service. 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. 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."
Designating Eligible Telecommunications Carriers -- Section 214(e)(2) states:
"A State commission shall upon its own motion or upon request designate a common carrier that meets the requirements of paragraph (1) as an eligible telecommunications carrier for a service area designated by the State commission. Upon request and consistent with the public interest, convenience, and necessity, the State commission may, in the case of an area served by a rural telephone company, and shall, in the case of all other areas, designate more than one common carrier as an eligible telecommunications carrier for a service area designated by the State commission, so long as each additional requesting carrier meets the requirements of paragraph (1). Before designating an additional eligible telecommunications carrier for an area served by a rural telephone company, the State commission shall find that the designation is in the public interest."
Determining Discounted Rates for Educational Institutions -- Section 254(h)(1)(B) allows States to set discounted rates for intrastate services within the definition of universal service educational institutions. The discount should be set at a level to ensure affordable access to and use of these telecommunications services by the schools and libraries.
Consumer Protection -- Section 254(i) states:
"The Commission and the States should ensure that universal service is available at rates that are just, reasonable, and affordable."
Prohibiting Subsidy of Competitive Services -- Section 254(k) states:
"...States, with respect to intrastate services, shall establish any necessary cost allocation rules, accounting safeguards, and guidelines to ensure that services included in the definition of universal service bear no more than a reasonable share of the joint and common costs of facilities used to provide those services."
Enforcing Existing Regulations -- Section 261(b) states:
"Nothing in this part shall be construed to prohibit any State commission from enforcing regulations prescribed prior to the date of enactment of the Telecommunications Act of 1996, or from prescribing regulations after such date of enactment, in fulfilling the requirements of this part, if such regulations are not inconsistent with the provisions of this part."
Additional State Requirements -- Section 261(c) states:
"Nothing in this part precludes a State from imposing requirements on a telecommunications carrier for intrastate services that are necessary to further competition in the provision of telephone exchange service or exchange access, as long as the State's requirements are not inconsistent with this part or the Commission's regulations to implement this part."
Federal Definitions Related To Universal Service
Universal Service -- Section 254(c)(1) states:
"(1) Universal service is an evolving level of telecommunications services that the Commission shall establish periodically under this section, taking into account advances in telecommunications and information technologies and services. The Joint Board in recommending, and the Commission in establishing, the definition of the services that are supported by Federal universal service support mechanisms shall consider the extent to which such telecommunications services--
(A) are essential to education, public health, or public safety;
(B) have, through the operation of market choices by customers, been subscribed to by a substantial majority of residential customers;
(C) are being deployed in public telecommunications networks by telecommunications carriers; and
(D) are consistent with the public interest, convenience, and necessity."
Eligible Telecommunications Carriers -- Section 214(e)(1) states:
"A common carrier designated as an eligible telecommunications carrier under paragraph (2) or (3) shall be eligible to receive universal service support in accordance with section 254 and shall, throughout the service area for which the designation is received--
(A) offer the services that are supported by Federal universal service support mechanisms under section 254(c), either using its own facilities or a combination of its own facilities and resale of another carrier's services (including the services offered by another eligible telecommunications carrier); and
(B) advertise the availability of such services and the charges therefor using media of general distribution."
Universal Service - Section 254(e)(5) states:
"The term "service area" means a geographic area established by a State commission for the purpose of determining universal service obligations and support mechanisms. In the case of an area served by a rural telephone company, "service area" means such company's "study area" unless and until the Commission and the States, after taking into account recommendations of a Federal-State Joint Board instituted under section 410(c), establish a different definition of service area for such company."
Contributors to the Fund -- Section 254(d) states:
"Every telecommunications carrier that provides interstate telecommunications services shall contribute, on an equitable and nondiscriminatory basis, to the specific, predictable, and sufficient mechanisms established by the Commission to preserve and advance universal service. The Commission may exempt a carrier or class of carriers from this requirement if the carrier's telecommunications activities are limited to such an extent that the level of such carrier's contribution to the preservation and advancement of universal service would be de minimis. Any other provider of interstate telecommunications may be required to contribute to the preservation and advancement of universal service if the public interest so requires."
Section 254(b)(4) states:
"All providers of telecommunications services should make an equitable and nondiscriminatory contribution to the preservation and advancement of universal service."
Rural Telephone Company -- Section 3(37) states:
"The term "rural telephone company" means a local exchange carrier operating entity to the extent that such entity--
(A) provides common carrier service to any local exchange carrier study area that does not include either--
(i) any incorporated place of 10,000 inhabitants or more, or any part thereof, based on the most recently available population statistics of the Bureau of the Census; or
(ii) any territory, incorporated or unincorporated, included in an urbanized area, as defined by the Bureau of the Census as of August 10, 1993;
(B) provides telephone exchange service, including exchange access, to fewer than 50,000 access lines;
(C) provides telephone exchange service to any local exchange carrier study area with fewer than 100,000 access lines; or
(D) has less than 15 percent of its access lines in communities of more than 50,000 on the date of enactment of the Telecommunications Act of 1996."
Elementary and Secondary Schools -- Section 254(h)(1)(B)(5)(A) states:
"The term 'elementary and secondary school' means elementary schools and secondary schools, as defined in paragraphs (14) and (25), respectively, of section 14101 of the Elementary and Secondary Education Act of 1965 (20 U.S.C. 8801)."
Health Care Provider -- Section 254(h)(1)(B)(5)(B) states:
"The term 'health care provider' means--
(i) post-secondary educational institutions offering health care instruction, teaching hospitals, and medical schools;
(ii) community health centers or health centers providing health care to migrants;
(iii) local health departments or agencies;
(iv) community mental health centers;
(v) not-for-profit hospitals;
(vi) rural health clinics; and
(vii) consortia of health care providers consisting of one or more entities described in clauses (i) through (vi)."
Federal Pricing Mandates Related to Universal Service
Comparable Rates for Health Care Providers -- Section 254(h)(1)(A) states:
"A telecommunications carrier shall, upon receiving a bona fide request, provide telecommunications services which are necessary for the provision of health care services in a State, including instruction relating to such services, to any public or nonprofit health care provider that serves persons who reside in rural areas in that State at rates that are reasonably comparable to rates charged for similar services in urban areas in that State. A telecommunications carrier providing service under this paragraph shall be entitled to have an amount equal to the difference, if any, between the rates for services provided to health care providers for rural areas in a State and the rates for similar services provided to other customers in comparable rural areas in that State treated as a service obligation as a part of its obligation to participate in the mechanisms to preserve and advance universal service.
Discounted Rates for Educational Providers and Libraries - Section 254 (h)(1)(B) states:
"All telecommunications carriers serving a geographic area shall, upon a bona fide request for any of its services that are within the definition of universal service under subsection (c)(3), provide such services to elementary schools, secondary schools, and libraries for educational purposes at rates less than the amounts charged for similar services to other parties. The discount shall be an amount that the Commission, with respect to interstate services, and the States, with respect to intrastate services, determine is appropriate and necessary to ensure affordable access to and use of such services by such entities. A telecommunications carrier providing service under this paragraph shall--
(i) have an amount equal to the amount of the discount treated as an offset to its obligation to contribute to the mechanisms to preserve and advance universal service, or
(ii) notwithstanding the provisions of subsection (e) of this section, receive reimbursement utilizing the support mechanisms to preserve and advance universal service."
APPENDIX C: Summary of Other States Universal Service Activities
This appendix is available on request.