House Telecom Subcommittee ranking Democrat Markey (Mass.) is circulating draft bill that would create trust fund for digital technology grants out of future wireless auction proceeds. Draft bill also would allocate spectrum for advanced wireless services while keeping intact Bush Administration proposal for separate trust fund for govt. relocation proceeds for incumbent users that may be relocated from spectrum. Markey’s proposal, which panel of industry and academic experts at New America conference said Fri. has bipartisan backing, would reserve first $5 billion derived from applicable spectrum auctions to reimburse Dept. of Defense and other govt. agencies for vacating various spectrum bands. Rest of auction proceeds would be deposited into separate trust fund to provide grants for educational broadband technology and deployment projects, making those funds available to entities currently eligible for universal service funding. Up to $300 million from such grants would be made available annually to public TV stations to upgrade analog stations to digital. Markey is expected to introduce bill this week and Sen. Dodd (D-Conn.) is said to be drafting somewhat broader companion bill that also has bipartisan backing.

ISPs could benefit from industry proposal to revise way it collects contributions from telecom carriers for universal service fund (USF), Information Technology Assn. of America (ITAA) told FCC in comments filed late Mon. Commission had asked for comments on proposal to move to connection-based methodology, meaning carriers’ contributions would be based on end-user connections -- generally wires to homes and offices or wireless phone numbers -- rather than based on interstate revenue. While proposal involves rather technical adjustments, it has elicited strong feelings because it would require wireless and local exchange carriers to contribute more and long distance carriers less. Under current system, long distance carriers are main contributors. In both scenarios, customers ultimately pay because carriers pass costs on to them in form of fees on bills.

FCC proposal to change way it assesses contributions from carriers for universal service fund (USF) isn’t competitively neutral as required by Telecom Act, Verizon said in comments filed Mon. at agency. Commission has proposed assessing contributions on flat, per-connection basis (CD Feb 15 p11), which means long distance companies would be freed from having to contribute, Verizon said. Companies collect USF fees from their customers to cover those contributions but size of those customer fees can affect their overall bills and thus, some say, their competitiveness. Verizon said per-connection plan would mean ILECs and wireless carriers would have to collect bulk of money because long distance companies didn’t have many “connections” -- lines to home or business or wireless phone numbers. FCC is looking at possible change in current system because carriers such as AT&T with declining revenue have complained that they're assessed too much and thus are collecting too much from their customers. Assessments are based on future revenue and AT&T has said it keeps finding itself collecting fees based on former, higher revenue. Verizon said that problem could be solved by basing contributions on estimated future revenue, with true-up feature, which is proposal AT&T made in another proceeding. Among others weighing in late Mon., American Assn. of Paging Carriers (AAPC) said proposal would result in “unjustified increase in USF assessments” for paging carriers. AAPC recommended that 2-tiered fee structure be established for paging carriers, with less charged to one-way pagers than to advanced paging services. “Converting USF assessments for paging carriers to a flat, per pager charge would be a desirable modification… if implemented properly,” AAPC said. “However, the proposed charge of [25 cents] per pager per month is grossly excessive and unjustified and inconsistent with statutory requirements.” USTA urged FCC to “to look at the larger picture” and develop long-term plan for collecting universal service contributions. “The failure to adopt a contribution mechanism that allows for the full funding of the high-cost universal service support mechanism in a competitively neutral manner is contrary to law and would be bad public policy,” USTA said. OPASTCO and National Rural Telecom Assn. said they supported idea of flat fee but not connection-based method proposed by agency earlier this year. Organizations said plan would violate mandate that contributions be made on nondiscriminatory basis: “The proposal would practically exempt from making contributions providers whose principle offering is the interstate transmission that actually gives any telecommunications service its interstate character… If LECs are to contribute under a flat-fee mechanism, then the IXCs must pay monthly contributions of at least the same amount for each of their interstate customers.”

Acknowledging that 6-year-old funding program for rural health care hasn’t worked very well, FCC at agenda meeting Thurs. asked for comments on how to improve it. Rural health care (RHC) program, mandated by Telecom Act, was companion to e-rate fund. Both were aimed at broadening availability of advanced services and offered discounted services through use of universal service funds. RHC program envisioned health care clinics’ using federal funds to improve their ability to transfer medical X-rays and other tests over Internet for viewing by distant medical specialists. It’s high time program was reevaluated since only $13 million has been distributed to rural health care providers over last 3 years, Comr. Abernathy said. FCC may have interpreted Telecom Act’s requirements too narrowly and as result too many rural service providers became ineligible for funding, she said. For example, Abernathy said, some rural health care providers have been denied funding because they provide functions beyond health care clinics, such as nursing homes. FCC staff told commissioners they recommended reevaluation because current funding mechanism “has not fully met its potential.” Comr. Copps said program didn’t appear to have “lived up to its potential” since so little was spent and rules should be reviewed “sooner rather than later.” Program has $400 million annual cap. Copps and Chmn. Powell said RHC program had taken on homeland security significance that gave review more urgency. Anthrax scare and related terrorist concerns have heightened importance of sharing medical information, Powell said. Agency said it wanted comments on: (1) How to treat entities that served not only as rural health care providers but had other functions as well. (2) Whether to provide discounts on Internet access charges. (3) Whether to change calculation of discounted services.

AT&T got little support for request to base its universal service contributions on projected, rather than 6- month-old, revenue. AT&T told FCC that because its revenue was declining, current contribution system was causing it to pay too much into universal service fund. FCC assesses carrier payments by calculating contribution factor that’s based on companies’ interstate revenue. However, there is lag between when contribution factor is set and when it’s applied to revenue. For example, first quarter revenue would be used as base to calculate amount to be charged to carrier in 3rd quarter. AT&T asked that Commission calculate contribution factor on projected revenue for quarter when payment was made, subject to true-up if actual revenue was different than projected one. In comments to FCC filed April 12, Bell companies, and even fellow long distance company WorldCom, urged FCC to deny AT&T plan. BellSouth said proposal should be “summarily denied” because it didn’t demonstrate any public interest benefits: “Indeed AT&T’s request is about AT&T’s pecuniary and competitive interests, not the public interest.” Verizon said AT&T hadn’t shown any special circumstances to justify such treatment since “its complaints about declining interstate demand can be matched by many other carriers, including Verizon.” FCC already has opened general rulemaking to look at contribution issues and that’s more appropriate place to deal with AT&T’s concerns, Verizon said. WorldCom said AT&T’s request would cause it competitive harm since AT&T would be able to charge its customers lower universal service fee than WorldCom: “As a result, all other things being equal, the total cost of purchasing long distance service from WorldCom would be greater than purchasing from AT&T. Customers who might otherwise have selected WorldCom will select AT&T as a service provider because of the effects of the universal service assessment scheme.” Long distance carriers usually pass their universal service assessments onto to customers in monthly fees. Rather than dealing with that problem in “piecemeal fashion,” FCC “is far better served by addressing the underlying problem that the current funding mechanism based on revenues is inherently unstable and must be replaced,” WorldCom said. Assn. of Communications Enterprises (ASCENT) said “AT&T’s request dramatically highlights the flaws inherent in a system which assesses universal service contributions predicated upon stale revenue data.” FCC should “act now to address the problem highlighted by AT&T” by adopting projected revenue system for all carriers, ASCENT said. Agency then could work on “more drastic” change such as replacing revenue-based system with something else such as connection-based scheme, ASCENT said. It could take FCC long time to make more sweeping changes in universal service contribution methodology so AT&T’s plan could give relief in meantime, group said. Otherwise, carriers with decreasing revenue will forced to continue calculating contributions “based upon stale and inflated historical revenue data, with… inequitable results,” ASCENT said.

FCC should take advantage of universal service remand proceeding to “comprehensively reexamine universal service reform” and determine what parts of system “dampen competitive opportunity,” Competitive Universal Service Coalition (CUSC) said in comments filed late Thurs. FCC had asked for comments on issues raised by 10th U.S. Appeals Court, Denver, in its remand last year of agency’s 9th universal service order. Commission order set mechanism for determining how much federal universal service support would go to larger ILECs but 10th Circuit in Qwest v. FCC said agency hadn’t adequately: (1) Defined Telecom Act’s requirement that support in rural areas be comparable to urban areas. (2) Explained its reasoning for setting funding benchmark at 135% of national average. (3) Provided inducements for states to implement comparable universal service policies. CUSC said last requirement was particularly important -- that FCC provide inducements for states to develop plans that conformed with Commission’s procompetitive policies. That could be done by tying availability of federal support to state efforts to adopt competitive policies, CUSC said. Under Coalition’s plan, federal support would be available only if states employed “competitively neutral rules” for designating eligibility for state and federal subsidies and assured that all intrastate subsidy mechanisms were “explicit, portable and competitively and technologically neutral.” Tenth Circuit’s decision “leaves no question that it is up to the FCC to provide direction for state efforts with respect to both federal and state universal service programs,” CUSC said. Representing incumbent telco interests in rural areas, National Telecom Co-operative Assn. (NTCA) said such inducements “should not create mandates on states that would interfere with a state’s jurisdiction over intrastate rates and services.” NTCA said it was concerned that decisions in proceeding not “affect the calculations of universal service support for rural telephone companies or hinder the rights of rate-of-return carriers to recover costs properly allocated to the interstate jurisdiction.” NTCA also urged FCC to consider disparities in rural service when it defined term “reasonably comparable” as required by court. “Today, this country does not have a fair and equitable way to reconcile differences in rates for basic local calling services,” Assn. said. Some rural companies have low basic rates but calling areas so small that they have to make long distance calls to key parts of their communities such as hospitals and schools, NTCA said. Tex. PUC said it supported idea of inducements to encourage states to implement universal service mechanisms but “states with viable universal service support mechanisms, such as Texas, should be exempt from such requirements.” Tex. PUC urged FCC not to implement “unwarranted, mandatory mechanisms” because “mandatory state inducements could impose inappropriate hardships that could disrupt the currently successful operation” of Tex. universal service fund.

Cal. PUC at its May 2 meeting is scheduled to consider recommendation to deny use of state universal service funds to help Roseville Telephone’s revenue situation. An administrative law judge urged agency to reject Roseville’s petition to draw from state’s high cost fund to replace $11.5 million in annual revenue telco lost following Nov. 2000 expiration of extended area service agreement with SBC/Pacific Bell. PUC allowed Roseville to withdraw from fund’s account B until it decided on telco’s petition for permanent draw to replace lost revenue. Administrative law judge (Case U1015-C) said it would be inappropriate to let Roseville replace revenue from universal service fund because money would be subsidizing Roseville’s general business operations, not its high-cost exchanges.

Vt. Public Service Board began investigation into availability of Lifeline services for CLEC customers. Board will outline issues and set procedural schedule for Case 6657 at prehearing conference April 12. Move came after Vt. Dept. of Public Service (DPS), acting as utility consumer advocate, said it appeared no CLEC in state offered Lifeline discounts to low-income residents, while all 10 incumbents offered Lifeline programs that waived federal subscriber line charge and up to $7 of monthly local service charge. DPS said lack of CLEC Lifeline service forced Lifeline-eligible customers to “decide between the benefits of receiving Lifeline credits and the benefits of competition.” DPS wants requirement that all CLECs provide Lifeline subsidies for eligible customers and state universal service fund be amended to that end.

Canal Plus lawsuit accusing NDS of hacking encryption for its pay-TV smart cards is exposing unwelcome news for broadcasters: There now is too much skill in too many labs worldwide, and too much information on Internet, for any conventional smart card system to stay unhacked. Encryption experts said if broadcasters wanted to protect their programming and revenue, they might have to switch to smarter smart card that automatically eliminated data if attempt were made to hack it.

Canal Plus lawsuit accusing NDS of hacking encryption for its pay-TV smart cards is exposing unwelcome news for broadcasters: There now is too much skill in too many labs worldwide, and too much information on Internet, for any conventional smart card system to stay unhacked. Encryption experts contend that if broadcasters want to protect their programming and revenue, they might have to switch to smarter smart card that automatically eliminated data if attempt were made to hack it.