Telecom Act revision should be legislation of few words and fewer regulations, BellSouth Chmn. Duane Ackerman told an American Enterprise Institute/Brookings Institution forum Tues. If Congress concludes competition between multiple facilities-based networks works better than traditional regulation -- which Ackerman believes it will -- telecom reform “could be dealt with in a very short bill in a matter of months, not years. This is not complicated.” Ackerman emphasized that telecom reform must be simple, to avoid lengthy litigation like that over the Telecom Act of 1996.

The FCC Wireline Bureau issued the first double-digit contribution factor for carriers paying into the Universal Service Fund (USF) -- 10.7% for first quarter 2005, up from 8.9%. The factor is a percentage of carriers’ interstate revenue and usually is passed on to customers as a line item on phone bills. It reflects USF costs but not costs caused by the FCC’s decision to apply the Anti- Deficiency Act to the USF. Congress recently passed legislation exempting the USF from the Act’s requirements until the end of 2005. SBC Senior Vp James Smith said the double-digit USF figure “clearly highlights the need for comprehensive reform of how the program is funded” through measures such as the changes proposed by the Intercarrier Compensation Forum. The USF increase also could have been lessened if the FCC required AT&T “to pay its lawful share into the fund,” Smith said. AT&T hasn’t been making USF contributions on revenue from its enhanced prepaid card services. SBC contended the amount AT&T is withholding represents about 1/2 the contribution factor increase. An AT&T spokeswoman said SBC’s comments were “self-serving rhetoric.” She said it would be “misguided policy” to impose USF obligations on enhanced prepaid cards because it would “shift more of the costs of the fund to those least able to afford it.” AT&T is the largest contributor to the USF. The FCC is expected to act on the AT&T card issue early next month.

The National Telecom Co-op Assn. (NTCA) urged the FCC to explore alternatives to the existing intercarrier compensation mechanisms, as the Commission moves forward in enacting new rules. It strongly criticized the bill & keep approach, which it said was “not an appropriate substitute for a charge that recognizes the value provided and the costs imposed when a carrier utilizes another carrier’s facilities.” The group warned the Commission against adopting a “one-size fits all” solution, which it said “could harm rural telephone companies and the rural consumers they serve.” NTCA submitted a “blueprint of elements” for the FCC to consider when shaping the new rules. It urged the Commission to adopt rules that: (1) “Include a different set of regulatory policies for rural telephone companies to ensure that their network remain viable.” It said rural ILEC networks were “the default infrastructure in high cost areas,” and in most cases they offered “the only telecommunications service that is ubiquitous throughout their service area and universal service would not exist without them.” (2) “Include some charge that provides for carriers to compensate each other for the use of one another’s network.” (3) “Preserve and sustain universal service.” It said a reform shouldn’t result in “unaffordable end user rates or in a ballooned universal service fund that is unsustainable.” (4) “Preserve rural ILECs’ option to operate under rate-of- return regulation,” which it said was “a reasonable means to determine financial requirements for rural telephone companies also to ensure their ability to continue to invest in rural areas.” (5) “Encourage investment in a network infrastructure capable of delivering high quality broadband services in all areas of the nation.” NTCA said the FCC should ensure that “customers and carriers across all sectors of the industry share equal responsibility for the use of the public switched network.” The filing followed a study the group submitted to the Commission in Jan., which found a pure bill & keep regime would affect the revenue of rural companies by more than $2 billion annually.

The Senate sent telecom legislation to President Bush on Wed. evening in a literal 11th-hour vote. By approving HR-5419, the Senate approved 3 legislative measures and ended weeks of political infighting about everything from Congressional Budget Office scoring to appropriators’ authority and boxing regulation. Sources said the White House would sign the act, which includes the spectrum relocation trust fund, E-911 funding and a temporary fix to accounting problems in the E-rate program. The junk fax bill, HR-4600, was the only legislation that had a reasonable chance to pass and didn’t. “The legislation brings needed changes that will promote homeland security and increase wireless broadband opportunities,” FCC Chmn. Powell said.

The FCC Wireline Bureau asked for comments by Jan. 5 on a plan by the Universal Service Administrative Co. (USAC) for resolving questionable findings of E-rate program audits. The FCC directed USAC to develop the plan and provide deadlines so audits are resolved quickly. USAC’s plan calls for reviews of audit findings in 14 days generally, and no longer than 60 days. The plan has 3 ways of resolving audit findings: (1) Clearing it because the fund applicant provides adequate documentation or other evidence. (2) Determining it’s not a program violation after USAC’s Schools & Libraries Div. (SLD) evaluates whether in a rule in effect for the funding year at issue was clearly violated. If SLD is uncertain it turns to the Wireline Bureau for guidance. (3) Determining it’s a violation. After review by the USAC Audit Committee, a process begins to recovery “improperly disbursed funds.” The plan describes the paths and schedules for review by various parties and describes follow-up action with contractors. It adds that law enforcement referrals are made by USAC’s gen. counsel under criteria set by USAC’s board. “In general, the criteria… are whether the auditee was determined to be not compliant with program rules and whether the audit findings are based on serious rule violations with potential criminal implications.” -- (CC Doc. 02-6)

At our deadline, Congress had taken no action on pending telecom legislation and appeared unlikely to do so. Conflicting stories and behind-the-scenes finger pointing highlighted the debate this week, but congressional and industry sources attributed the collapse of legislation to one central theme: Political infighting and retaliation.

Cal. PUC Comr. Susan Kennedy told Silicon Valley executives that regulators and lawmakers need to get over their fears of the IP-enabled telecom future if they are to develop policies that will allow its promise to be fulfilled. In an address to the TechNet/Silicon Valley Mfg. Group in San Jose, Kennedy said Internet telephony had set off “a wave of abject fear in the regulatory world” because “it changes everything we know about telecommunications.” She said regulators fear losing jurisdiction, legislators fear loss of billions of tax dollars and millions in funding for social programs like universal service, plus rate increases. Incumbent carriers, she said, fear loss of access charges and rural carriers fear loss of subsidies. She said the carrier and service distinctions that are the source for regulatory authority have become meaningless in a VoIP world and while social programs depend on cost-based funding, but IP-based technology is driving down the cost of telephony across the board. She said current telecom regulations and laws aren’t designed for an era of technology convergence and intermodal competition and have become “so outdated and convoluted that competitors are using the regulatory process itself as a weapon.” She said the result is actions like the Cal. PUC decision that stopped Verizon from installing next-generation packet switching technology “while the PUC sorts out what rules it wants to apply.” Kennedy said she’s the presiding commissioner on a PUC docket to revamp the entire telecom regulatory framework in Cal., and said she intends to ensure that it accommodates the world of today and tomorrow, not yesterday’s era. She also said the PUC is developing a statewide broadband deployment plan to bring the full weight of the legislature and governor to bear.

There appears to be a break in the stalemate over remaining telecom legislation before Congress, but it remains unclear if there’s time to move legislation before Congress recesses for the year. Senate Commerce Committee Chmn. McCain (R-Ariz.) agreed to move the Universal Service Fund provision that’s part of the trio of telecom bills awaiting congressional action (HR-5419). McCain had a hold on the bill because the House wouldn’t consider his bill to create a national boxing commission. It appeared the 2 other measures -- on spectrum trust fund relocation and E-911 funding -- wouldn’t get moved.

Rep. Sweeney (R-N.Y.) urged the FCC not to raise phone rates for U.S. military personnel. The FCC had considered applying Universal Service Fund and access charges to AT&T prepaid phone cards, but the 2005 Omnibus Appropriations Act prohibited the FCC from taking any actions that could lead to an increase in rates for military personnel. Sweeney reminded FCC Chmn. Powell of the provision and said the Commission shouldn’t take any action that would lead to a rise in rates.

FCC Chmn. Powell and USTA urged Congress Mon. to pass legislation that would exempt the universal service fund from Anti-Deficiency Act requirements that would delay E- rate payments and could lead to higher USF fees on telecom consumers. The USF provision is part of HR-5419, which also includes spectrum trust fund relocation legislation and federal funding for E-911 deployment. The bill has been stalled by Senate Commerce Committee Chmn. McCain (R- Ariz.), who’s insisting that the House also consider his legislation that would establish a national boxing commission. In a public statement Mon., Powell said all 3 measures were important and urged Congress to pass the bill before it adjourns. Congress is scheduled to meet this week to consider the intelligence reform legislation, but many in the telecom industry hope the impasse on HR- 5419 can also be resolved this week, though sources have said both McCain and House leaders appear reluctant to change their position. “The temporary Anti-Deficiency Act exemption is necessary to mitigate unnecessary increases to our contribution factor as well as ensure our school children have continued access to computer resources,” Powell said. A letter Mon. from 219 USTA members to Senate leaders urged Congress to pass the USF legislation. “Unfortunately, if not corrected, this bureaucratic change could also cause consumer phone rates to rise dramatically,” said USTA Pres. Walter McCormick.