FCC called for comment on issues raised by 10th U.S. Appeals Court, Denver, in its remand last year of agency’s 9th universal service order. Order set mechanism for determining how much federal universal service support would go to larger ILECs. Court ruled in Qwest v. FCC that order didn’t adequately: (1) Define and apply Telecom Act’s requirements that rates in rural areas must be “reasonably comparable” with urban areas and support should be “sufficient.” (2) Explain its reasoning for setting funding benchmark at 135% of national average. (3) Provide inducements for states to implement universal service policies. (4) Explain how mechanism would interact with other universal service programs. In Notice of Proposed Rulemaking (NPRM) released late Fri., FCC asked for comments on first 3 areas and said it would deal with 4th later. Commission’s 1999 order established formula that determined how much federal support would go to each state by comparing average cost per line in each state against nationwide cost benchmark of 135%. It then allocated support only for amount of costs above that benchmark. Comments are due 30 days from NPRM’s publication in Federal Register.

FCC’s tentative conclusion that DSL and other phone- based Internet services should be reclassified as information services (CD Feb 15 p1) is likely to have broad impact on cable industry, which is nation’s leading provider of high- speed Internet access. With parallel proceedings examining classification of cable modem service pending, Commission appears to be extending its vision of broadband across platforms, observers say, and that could add regulatory burdens to cable modem service that aren’t there today. For example, in FCC’s notice of proposed rulemaking (NPRM) are questions about universal service requirements and whether companies other than traditional wireline telephone service providers should be only ones contributing to it.

FCC voted at agenda meeting Thurs. to seek comments on changing way it assessed contributions from carriers for universal service fund (USF). Agency asked, for example, whether it should assess USF contributions based on number and capacity of connections carriers provide to customers rather than on their interstate revenue, which was current practice. FCC Common Carrier Bureau Chief Dorothy Attwood said further notice of proposed rulemaking (NPRM) stemmed in part from proposal by coalition of long distance carriers and large business customers (CD Nov 20 p1). Agency said further NPRM offered opportunity to “further develop” comments made last year in response to initial NPRM on how current assessment and recovery of USF contributions should be modified as marketplace evolves. Under connection-based plan, LECs, long distance companies and wireless providers would contribute $1 per month for each connection to public network for residential users. Paging companies would contribute 25 cents per connection. Business connection assessments would be based on maximum available capacity, or bandwidth, of connection. NPRM also seeks comment on whether carriers that choose to recover their USF contributions through line items do so in uniform manner and don’t recover amounts in excess of their actual USF contributions. Agency adopted order that streamlines current contribution system. Attwood told reporters later that current system created some lack of specificity and agency would ask whether there was better way to handle those problems. For example, wireless carriers pay into USF based on 15% of their revenues under “assumption” that they handle that much interstate traffic. However, new calling plans indicate percentage is probably much higher, she said. She emphasized, however, that USF item makes no conclusions. USTA called action “encouraging.”

FCC “tentatively concluded” at its agenda meeting Thurs. that DSL and other “telephone-based” Internet services should be reclassified as information services, action that could lead to less regulation for Bell company-provided broadband services although it was uncertain exactly what impact would be. Information services such as voice mail and e-mail traditionally operate under fewer regulations than do common carrier services. FCC said action could improve investment climate by eliminating regulatory uncertainty. It said it also could lead to more equitable regulatory treatment across different broadband platforms. Bells have been asking for long time for lessened regulation of their broadband services, saying that would make them more comparable to cable modem services.

Congressional speakers told NARUC major changes in federal law aren’t necessary for rural broadband development, even as NARUC and leading state regulators began new drive to discredit pending Tauzin-Dingell broadband deregulation bill coming up for crucial vote soon. Rep. Wilson (R-N.M.) said bringing broadband to rural areas wouldn’t require wholesale changes in Telecom Act and goal could be accomplished with modest changes in universal service support system, coupled with relief from prohibitively costly and burdensome right- of-way access requirements.

Most important universal service issues pending before FCC, according to FCC Comr. Abernathy: (1) Action on remand by 10th U.S. Appeals Court, Denver, in Qwest v. FCC. Appeals court ordered FCC to reexamine how it calculated high-cost universal service support for nonrural telcos. Abernathy said she would like to have had action already, “we need to get back to the court.” (2) Action on “contribution methodology,” issue teed up for agenda meeting Thurs. She said FCC had to look at how it collected universal service contributions in light of declining revenue and new technology. (3) Effect on universal service funding of “migration of technology to new digital platforms.” Depending on how those new technologies are defined, move to digital technology could eliminate providers’ obligations to contribute to universal service, she said. That could jeopardize current funding structures and place “tremendous burden on isolated users,” she said. Abernathy spoke at FCBA brown-bag lunch on universal service. She also said she would like to see data developed to compare telephone penetration rates vs. universal service funding vs. use of Lifeline and Linkup programs. She said it would be interesting to see whether data showed relationships to guide FCC and states in upcoming proceedings. Asked about universal service funding restrictions for rural LECs that buy exchanges from Bells, Abernathy said that’s tough policy decision. Some rural customers are “probably better off” with smaller telcos but “you don’t want to create a land grab” mentality, she said. Nanette Thompson, Alaska Regulatory Commission chmn., who also was featured at lunch, said that when GTE sold off exchanges in Alaska, smaller company bought them knowing it might not get much universal service funding but “they were willing to make the investment anyway.” She said that was “some of the worst plant in the state” and regulators were “happy to see a small company, closer to the community, take over.” On issue of universal service portability, Abernathy said it was difficult to determine whether competitors should get support based on incumbents’ costs or their own costs. She said it struck her as odd for competitors to get support based on incumbents’ costs. It doesn’t appear to be good long-term business plan for competitor, she said: “I don’t like to create uneconomic incentives like that.” Thompson said she agreed, but said it was difficult to determine CLEC costs because PUCs traditionally hadn’t sought as much information on them: “The prospect of having to learn the costs of CLECs troubles me.” Some have advanced idea of giving CLECs support based on either ILEC costs or unbundled network element (UNE) rates, whichever is lower, she said. Thompson said that would be “a good incentive for ILECs to set UNE rates right.”

Speakers at NARUC winter meeting panel on special access agreed impartial performance standards for special access were of vital interest to telecom suppliers and buyers. Chip Casteel, WorldCom dir.-regulatory affairs, said improving incumbent telco accountability for special access provisioning was critical to development of effective local competition. He said lack of universal special access performance metrics meant unpredictable provisioning, which would upset CLEC business planning. Casteel said long distance entry would give Bell companies incentives to retain their overwhelming dominance in special access market so they could offer customers one-stop shop. Melissa Newman of Qwest said major question in special access standards debate was “which is the ‘right’ standard.” She said if there were to be national minimum performance metrics, they should be few in number and uniform for all providers. She suggested most useful general measures would be order confirm time, percent completed on time, percent done correctly first time, outage restoration time. Carl Johnson of N.Y. PSC staff said that 6 years after passage of Telecom Act, Verizon still had more than 80% share of special access market. He said Verizon special access service quality generally had been good up until adoption of price cap regulation in 1995, after which time quality plummeted for variety of reasons and didn’t get back to anything approaching good until late in 2000. He said PSC requirements such as credits to wholesale and retail customers for late special access installations could address intrastate service, but bulk of special access was interstate and it was up to FCC to develop and enforce performance standards. Brian Moir, partner with Moir & Hardman, said bulk of dedicated service contracts between big users and carriers consisted of performance metrics and guarantees. Special access today, he said, is mostly for data circuits essential to customers’ business operations. Performance is key for biggest users, he said, and they tend to stay with biggest provider because they are more likely to get performance they must have.

GAO report shows Universal Service Fund (USF) should be updated to take into consideration new technology such as IP telephony, Rep. Markey (D-Mass.), ranking minority member of House Telecom Subcommittee, said Mon. Report, requested by Markey, said IP telephony wasn’t widespread yet but eventually “could affect the revenue base from which universal service programs are funded.” Under current regulatory structure, providers of IP voice services don’t have to contribute to USF, GAO said. “As these new voice services gain popularity, concerns exist of whether federal funding levels for universal service might eventually decline,” GAO said: “In addition, there is much debate about whether the current federal regulatory framework for funding universal service -- with its reliance on interstate telecommunications revenues -- is appropriate for digital communications, where voice, video and data are carried in the same manner over networks that lack intrastate/interstate designations.” Report was based on views of state and federal govt. officials, academics and industry officials. GAO also reviewed local telephone rates provided by state PUCs, which Markey said revealed wide disparity in prices across country. He said wide differences were found among rural telephone companies’ rates as well as between rural and urban telco rates.

This is “do-or-die” year for telecom bills in state legislatures. Except in 2 states, all telecom bills pending in 2002 sessions must pass before this year’s adjournment or they're dead. Only in N.J. and Va. can bills from this year carry over to 2003. Accordingly, many state lawmakers are making swift decisions on early telecom measures even as floodgates have opened to new telecom-related legislation. In this report, we're updating status of previously-reported bills and noting significant new legislation that’s recently been introduced. Bills are grouped by subject, with advancing/defeated bills mentioned first in each group.

Alliance for Public Technology (APT) cited 3 major policy hurdles that it believed were hindering universal deployment of broadband, in report Fri. APT, which said it represented rural and remote, physically challenged and other underserved communities, said regulatory disparity, lack of investment incentives and govt.-constructed barriers were slowing pace. APT leaders acknowledged their constituencies were likely to be last to get broadband and perhaps never would see deployment of cable or other technologies because of high cost to serve often-sparse populations. Nevertheless, report, Advanced Services, Enhanced Lives, said govt. could do more to encourage private industry to reach everyone with broadband technologies.