House Telecom Subcommittee Chmn. Upton (R-Mich.) outlined plans Wed. for a bill that would create a “major” block grant program for Enhanced 911 funding for public safety agencies, but would condition the money on states’ not “raiding” 911 funds. At a hearing, he said the “comprehensive” bill also would create a national E911 program office in an existing agency such as the Dept. of Homeland Security (DHS) or NTIA. Upton expressed optimism after the hearing that a bill could move before the Aug. recess: “It’s ambitious. We don’t have a lot of weeks left. But it is important to everybody.”

The National Telecom Co-op. Assn. (NTCA) urged the Federal-State Joint Board on Universal Service to recommend that all pending eligible telecom carrier (ETC) designation applications before the Commission “be stayed until new portability rules and ETC guidelines are adopted and implemented.” It said the stay would give the Commission time to develop new universal service rules that would “remedy the flaws in the identical support rule” and establish new ETC guidelines that would “strengthen the public interest determination in rural areas, without increasing the size of the universal service fund [USF] through the granting pending ETC designations based on the current inequitable portability rules and insufficient ETC designation procedures.” The NTCA also recommended that the board make its own recommendation, instead of creating an industry task force that would “unduly delay the proceeding and create further uncertainty.” However, Western Wireless said there was a “need” for a competitive universal service task force process, analogous to the Rural Task Force (RTF): “Such a task force would create the possibility of an open discussion of the difficult issues, among open-minded people who certainly will disagree, but at least will listen to one another.” It said a task force also would help “fully inform members of Congress, the Joint Board and the FCC about the underlying facts of the universal service system as well as the optimal means for reform.”

The FCC Inspector Gen.’s Office said it had “numerous concerns” about the e-rate program and the IG’s ability to set up an effective oversight regime. In a report issued Tues., IG Walker Feaster and his office said there hadn’t been enough audits to come to definite conclusions about program improvements but: “The results of audits that have been performed and the allegations under investigation lead us to believe the program may be subject to [an] unacceptably high risk of fraud, waste and abuse through noncompliance and program weaknesses.” As it has in past reports, the IG said it was supporting investigations by law enforcement agencies in malfeasance by service providers and others. The report said law enforcement agencies asked the IG to help with one service provider in particular and on Feb. 3 the IG sent a memo to law enforcement officials that “identified monetary findings in the amount of $584,605 related to missing equipment and overbillings for recurring services.” The report didn’t identify the service provider. The IG said from July 1998 through June 2001 “the service provider received more than $9 million in E-rate funds for goods and services provided to approximately 36 schools.” The IG said it had established “a formal working relationship with the Governmental Fraud Unit of the FBI” and also worked with DoJ’s Antitrust Div. on a variety of cases. Allegations being investigated in those cases include: (1) Procurement irregularities such as lack of competitive bidding. (2) Service providers’ billing for goods and services not provided. (3) Funding of ineligible items. (4) “Misappropriation of assets.” (5) Beneficiaries’ not paying the local portion of the costs, “resulting in inflated cost for goods and services to the program and potential kickback issues.” The IG’s office said it was concerned “with the pace at which identifiable program improvements -- such as enhanced requirements for competitive procurement -- are being addressed.” It said it couldn’t give the FCC assurance that the program was protected from fraud, waste and abuse until there were enough resources and funding to provide better oversight. One of the oversight problems is that the FCC doesn’t have the authority to use USF funds to pay for its cost of administering the fund, including providing oversight, the report said. The IG recommended, among other things, improving management of the e-rate and the overall universal service fund: “Numerous functions, particularly in the area of financial management and oversight, are performed voluntarily by USAC [the Universal Service Administrative Co.] under undocumented, oral agreements… Formalizing certain administrative functions will strengthen the relationship between the Commission and USAC and result in more efficient and effective management of the fund.” In addition, fund management “would benefit from the additional control it would be afforded if it were maintained in an account managed by the Department of the Treasury,” the report said.

An Ill. state appeals court reversed an Ill. Commerce Commission ruling that had denied state universal service subsidies for secondary access lines. The ruling by the 5th Ill. Appellate Court on a challenge to the state’s rules for the Ill. universal service fund said the state’s definition of eligible services was more restrictive than the FCC’s rules. The court (Case 5-02-0199) also said denial of support for 2nd lines wrongly assumed that all secondary lines were discretionary, dismissing the needs of schools and libraries for subsidies on all their lines. The court said there was no good reason why access to 2nd lines should be more expensive for rural customers than for urban customers. The court remanded the secondary lines issue to the ICC. On another point of the telcos’ challenge, the court upheld the universal service funding level set by the ICC in March 2002, which acted to reduce the fund’s size 20% over a 3-year span and capped the charge to customers at $20.39 monthly. The court said it wasn’t in position to 2nd guess the ICC’s interpretation of the case record, and there was no evidence that the agency acted in an arbitrary or capricious manner.

Sprint will request a refund of all its USF (universal service fund) contributions related to prepaid cards as far back as Jan. 1998, should the FCC grant AT&T’s petition on prepaid cards, Sprint said in a letter to the Universal Service Administrative Co. (USAC) and the FCC last week. In May, AT&T asked the FCC to classify certain prepaid card services whose users heard an advertisement during the call set-up process as “enhanced” or “information” services because of subscriber interaction with stored information. Sprint said although the petition referred to access charges, a “necessary application” was that revenue from such prepaid cards would be the one from “information services,” rather than from telecom services, and therefore was exempt from USF contributions. However, Sprint argued the revenue from such cards constituted telecom service revenue because “users of these cards buy them to make telephone calls, rather than to listen to advertisements from the card issuer… If the FCC grants the AT&T petition, then it will be clear that Sprint’s view… is erroneous and that Sprint has mistakenly been overstating the amount of its revenues that is subject to USF assessments.” Sprint said USAC “may wish” to gather information from other companies on the way they classify and report revenue from prepaid card services to evaluate the potential impact on future funding of the exclusion or inclusion of such revenue in the contribution base. It cited recent FCC data that in 1999-2002, the number of reporting prepaid card providers more than doubled to 37, while the telecom services revenue reported by such entities declined more than 90% to $72 million. “This startling drop” in telecom services revenue, Sprint said, “suggests that AT&T may not be the only entity that is attempting to characterize prepaid card service as an ‘enhanced’ or ‘information’ service.”

Six House members urged colleagues not to sign on as co- sponsors of a universal service bill by Rep. Terry (R-Neb.) In a May 20 letter to other members, they said HR-1582 (CD April 4 p1) was “well-intended” but would address only one category of universal service -- nonrural high cost -- and “does not address many of the real problems that threaten the USF [Universal Service Fund]. “ The letter was signed by Reps. Baca (D-Cal.), Bachus (R-Ala.), Capito (R-W.Va.), Clyburn (D-S.C.), Cramer (D-Ala.) and Pickering (R-Miss.). House Commerce Committee Chmn. Tauzin (R-La.) has said he doesn’t support the bill either.

Intrastate telephone revenue should be included as a revenue source for the Universal Service Fund, several attendees said of a closed-door USF “summit” in the Senate, according to sources who attended the meeting. The sources said intrastate telephone revenues was one area where there appeared to be general consensus among the nearly 20 participants in the summit, sponsored by Senate Communication Subcommittee Chmn. Burns (R-Mont.) “There seemed to be, at the very least, tepid support for including intrastate revenue,” one source said. An industry source said FCC Comr. Abernathy told the summit that for the Commission to collect intrastate revenue, there would have to be authorizing legislation. There also was discussion on broadening the base of contributors to USF, sources said. Qualifications for eligible telecom carriers also received significant attention. Sources said no senators proposed specific legislation or other specific regulatory relief. Several said the tone of the meeting was very good. The meeting was moderated by Bob Rowe of the Mont. PSC. “Everyone had a fair shake. It was a good listening session,” said Don Erickson, OPASTCO legislative dir. USTA Pres. Walter McCormick said: “These important issues must be addressed in a rapidly comprehensive way that examines them in the context of other independent areas, such as regulatory relief and intercarrier compensation.” There will be a follow-up session in about 3 weeks, sources said, and one source suggested there could be several more meetings. Abernathy, Burns, FCC Comr. Adelstein, and Sens. Stevens (R-Alaska), Dorgan (D-N.D.) and Rockefeller (D- W. Va) attended the summit, along with the industry representatives from BellSouth, NTCA, Verizon, NCTA, CenturyTel, Western Wireless, AT&T, Qwest, USTA, E- Copernicus.com, TracFone, OPASTCO, Sprint, MITS, SBC, and the Wireless Independent Group.

Telecom relay services (TRS) used by consumers with hearing or speech disabilities could be integrated into the FCC’s homeland security efforts, the Commission said at its agenda meeting Thurs. The Commission tentatively concluded that those facilities should receive the same National Security/Emergency Preparedness (NS/EP) priority under the Telecom Service Priority (TSP) System as LECs. However, “our efforts are in no way complete,” Chmn. Powell said: “Developments central to our national security bring new considerations in our efforts to ensure functionally equivalent communications for hearing-impaired and speech- impaired individuals.”

The Kan. Corporation Commission (KCC) opened a docket to review its procedures for reporting and recording state universal service fund revenue. All carriers are required to contribute to the plan and must report annually on how much of their contributions have been recovered from customers. The new investigation responds to KCC staff concerns that some carriers with monthly flat-rate calling plans weren’t reporting contribution recovery on a consistent basis. Consumer groups also had raised a question of whether customers were being burdened by overstated fund assessments. The staff also wants repeal of the current USF contribution exemption given to one-way paging services. Intervenors in the proceeding (Case 03-GIMT-932-GIT) must register by May 23. Comments are due July 2 and replies July 29.

The FCC granted rural telecom companies’ requests and changed the annual deadline to Dec. 31 from July 31 for filing actual costs and revenue data under the new MAG (Multi-Assn. Group) Plan. The MAG Plan instituted a new universal service support mechanism for rural telecom companies called Interstate Common Line Support (ICLS), with a funding year that runs from July 1 to June 30. Telecom companies are required to project their costs and revenue on March 31 and file actual data July 31. Their universal service support is based on the projected figure, with the final number used to calculate a true-up. In a reconsideration order issued May 8, the Commission agreed to delay the deadline for filing actual costs because small telecom companies said they would have trouble meeting the July 31 date. The FCC said the lag time between projected and actual data would be mitigated by several additional measures taken to improve the accuracy of the projected figures. One of those measures will permit carriers to revise their projected data as late as June 30. FCC Comr. Copps issued a separate statement saying he didn’t object to changing the deadline but he had hoped the agency also would have acted by now on some other outstanding reconsideration petitions.