FCC MODIFIES UNIVERSAL SERVICE SUPPORT SYSTEM FOR LARGE TELCOS

The agency’s order generally followed a recommendation by the Federal-State Joint Board on Universal Service, with a few differences. The FCC: (1) Directed state regulators to compare rates in their rural areas with a nationwide urban rate benchmark to determine whether they were “reasonably comparable.” An FCC staff member said the Commission would implement a rate review process that encouraged states to make sure rates were comparable. Each state will have to certify with the Commission annually that rates are comparable. (2) Modified the separate benchmark for average cost-per-line. That benchmark determines the actual amount of support given to a nonrural carrier. The new cost benchmark is based on “2 standard deviations above the national average cost per line.” A member of the FCC Wireline Bureau said that was a statistical term that appeared to be the most accurate way to set costs. The original cost benchmark, and the one the Joint Board recommended keeping, was based on 135% of the national average cost. (3) Defined the statutory terms “sufficient” and “reasonably comparable” as required by the court. (4) Sought comment on issues related to rate review and expanded certification processes. (5) Asked for comment on “whether additional targeted federal support” should be made available to states that implemented explicit universal service mechanisms.

The FCC said it determined that rural and urban phone rates generally were “reasonably comparable” today so the current support levels for nonrural companies could be maintained for now.

FCC Chmn. Powell said the order “moves the nation one step closer to dismantling the system of false pricing information that regulators have imposed on the public.” He said it not only met the 10th Circuit’s requirements but also gave the Commission an opportunity “to define our goals more precisely,” and as a result “we have done a better job.”

FCC Comr. Martin dissented in part, saying he retained the same concerns he had expressed when the Joint Board made its recommendation last year. He said after the Joint Board action that the recommendation “essentially reaffirms the Commission’s existing universal service support mechanism for nonrural carriers.” Comr. Copps said he basically liked the order but still had “a reservation or two with respect to where we are headed.” He said some had argued that the statewide average costs standard adopted by the Commission “disadvantages nonrural carriers providing service in states with significant rural and urban areas.” He said the best course would be to continue to monitor that situation.

The nonrural universal service fund is smaller than the support that goes to rural companies -- $233 million in 2002, compared with the $3.2 billion in the rural fund. It also is the focus of recent efforts to win legislation to change the way it is distributed (CD Oct 7 p2). Qwest, local political entities and others have complained that little nonrural funding goes to Western states. Qwest Senior Vp Gary Lytle criticized the order for failing “to fairly distribute” the funds. More than 80% of the high-cost fund is funneled to just 3 states, he said. “Rural Americans in 42 states do not see a dime of this money.” Dale Curtis, spokesman for the Coalition for Equitable & Affordable Rural Service (CLEAR), said the FCC order was “a slap in the face” because it wouldn’t lead to more equitable funding distribution. CLEAR is composed of supporters of legislation aimed at distributing more nonrural universal service funding to Western states.