Federal and state regulatory policies are impeding consolidation of rural telephone lines, growing movement led by mid-sized companies such as CenturyTel and Citizens Communications, panelists said at Legg Mason investment conference in N.Y. on rural telephony Thurs. From regulators to rural operators, speakers said consolidation is latest trend in rural phone business, stoked by divestiture of lines by Bells such as Verizon and Qwest. Verizon has divested hundreds of thousands of former GTE lines throughout country, many of them acquired by consolidators, while others such as Qwest continue long-time trend to eliminate unprofitable exchanges. In addition, consolidators buy up small telcos run by families that no longer want to be in business. Consolidators generally can make more money from rural lines than Bells can because they have more access to universal service funding and their smaller size enables them to act more flexibly, panelists said.

Commerce Dept. Undersecy. Phillip Bond and heads of various agency departments praised President Bush’s FY 2003 budget at briefing Tues., insisting that shift in priorities for high-tech grant programs would benefit telecom and high- tech. Administration plans to eliminate Technology Opportunities Program (TOP) and scale back Advanced Technology Program (ATP) while shifting focus to other areas such as National Institute of Standards & Technology (NIST) and Patent & Trademark Office (PTO) (CD Feb 5 p1). Bottom line, Bond said, is that Bush budget contains “more in science and technology than any budget in history.” He praised Administration for making technology “one of the essentials” in time of budget restraint between needs of economy and war on terrorism.

Homeland security was dominant theme in President Bush’s FY 2003 budget proposal released Mon., with new money for securing telecom facilities among leading priorities. Some $3.5 billion would be allocated to assist first responders to emergencies in wake of Sept. 11, including support for landline and wireless telecom networks, twelvefold increase over FY 2002. Administration also outlined proposals for auctioning broadcast spectrum for 3G wireless and again proposed fines for broadcasters continuing to use analog spectrum after 2006.

FCC asked for comments on how to fine-tune its rules for administering e-rate program, part of universal service program that provides funding to connect schools and libraries to Internet. In Notice of Proposed Rulemaking (NPRM) issued Jan. 25, FCC said parties, including schools, libraries, service providers and representatives of local and state govts., had made proposals to improve program. NPRM will explore those ideas, as well as any others offered by parties: “We continue to seek ways to ensure that the program funds are utilized in an efficient, effective and fair manner, while preventing waste, fraud and abuse.” Agency said it sought comment on variety of eligibility issues such as whether: (1) Wide area networks, wireless services and voice mail were eligible for e-rate funding. (2) Schools and libraries could get discounts for Internet access service that might have limited amount of content if it was most cost-effective way to get access. (3) Schools and libraries should be required to provide certification that they were in compliance with Americans With Disabilities Act. (4) Changes were needed to rule governing when members of consortium could receive service from tariffed provider at below-tariffed rates. FCC also seeks comment on issues that arise once discounts have been granted, such as: (1) How schools and libraries make payments. (2) Limits on transferring equipment obtained with universal service discounts. (3) Allowing members of rural communities to use, for other purposes, excess capacity of services obtained through e-rate discounts. NPRM also will look at proposals for improving appeals process, strengthening enforcement, handling unused funds. Comments will be due 45 days after publication in Federal Register. Comr. Copps said that although he “wholeheartedly” supported seeking comment on ways to improve program, he dissented on one part involving whether unspent funds in one year could be provided to schools and libraries in later years. He said Commission made clear in its original rules in 1997 that funding could be carried forward to subsequent years, “yet the notice the Commission adopts today states that our rules are ambiguous” on that issue. “I find no ambiguity.”

FCC was justified in setting new universal service fund at $650 million for variety of reasons, CALLS coalition said in comments filed with Commission Jan. 22. FCC sought comments in response to Sept. 10 remand by 5th U.S. Appeals Court, New Orleans (CD Sept 12 p5). Court told FCC it hadn’t provided enough justification for size of fund and said it wasn’t enough that CALLS coalition recommended it. Coalition said picking CALLS number, based on AT&T study, was justified: (1) “by the interim nature of the proposal.” (2) because it represented agreement of “diverse group of ILECs and IXCs.” (3) because higher fund levels recommended by other parties would be difficult to adjust in future. On last point, CALLS group said universal service funding level probably would require adjustment after 5-year period specified by FCC, and adjusting AT&T figure upward would be easier than adjusting high figure downward. Coalition emphasized that court asked only for explanation of why figure was picked and didn’t “require the FCC to now divine a precise ‘correct’ amount of support.” Qwest, which wasn’t member of CALLS, told Commission $650 million was “insufficient to replace the support that was implicit in interstate access charges prior to the implementation of the CALLS order.” Thus, said Qwest, new fund “fails to comply with the requirement that the Commission replace implicit subsidies with universal service support that is ’specific, predictable and sufficient.'” Qwest said “synthesis model” FCC uses to determine universal service high cost support “indicates that the support mechanism should be at least $950 million.” Competitive Universal Service Coalition, composed of wireline and wireless competitors, said FCC should consolidate that issue with consideration of “broader issues regarding the structure of the high-cost support plan” that was mandated by 10th U.S. Appeals Court, Denver, in another case. Group said $650 million fund created in CALLS order “bears no relationship to the statutory directives of ensuring ‘affordable’ and ‘comparable’ rates.” Broader review would “ensure that the universal service system fully complies with the Act,” it said.

Cal. consumer watchdog group accused SBC/Pacific Bell of cramming unauthorized DSL charges onto customer bills, but Pac Bell called allegation “absurd.” In complaint to Cal. PUC, Utility Consumer Action Network (UCAN) alleged Pac Bell had crammed DSL charges onto bills of at least 3 customers who never ordered service and that 3 named in complaint were representative of “substantially larger” number of users suffering unauthorized billing of DSL charges. UCAN also alleged that when customers disputed charges, Pac Bell threatened them with local exchange disconnection or toll restriction. Pac Bell denied intentional cramming. It said billing mistakes could occur and might take longer to correct when resolution of problem involved both Pac Bell and affiliates. Pac Bell’s formal answer to complaint (Case 02- 01-007) is due Feb. 11, with prehearing conference Feb. 19. Meanwhile, Cal. PUC is scheduled to vote Feb. 21 on settlement proposal for interim deaveraging of SBC/Pacific Bell’s unbundled network element (UNE) rates. Settlement recommended by PUC administrative law judge, involving Pac Bell, AT&T and WorldCom, would divide Bell’s territory into 3 cost zones. Interim rates would be at levels originally proposed by Pac Bell, including 25% difference in UNE rates between lowest and highest cost zones. Pact also would set up procedure for allocating universal service subsidies from Cal. High Cost Fund B to CLECs providing local service via unbundled loops. Agreement would remain in effect until PUC set permanent deaveraged UNE rates in Case 00-03-002.

Federal, state and local govts. need to make broadband rollout top priority, Silicon Valley advocacy group TechNet said Tues., and that means facilities-based telecom competition. “It’s all about how to encourage competition in the last mile,” said Microsoft COO Robert Herbold, member of TechNet’s broadband working group and also of President Bush’s Council of Advisers on Science & Technology (PCAST). TechNet Pres. Rick White, former Democrat on House Telecom Subcommittee, said TechNet “would encourage opening the local loop as much as possible.” However, in its White Paper A National Imperative: Universal Availability of Broadband by 2010, TechNet said FCC shouldn’t mandate open access for cable broadband networks. Group declined to take position on Bell-friendly bill sponsored by House Commerce Committee Chmn. Tauzin (R-La.) and ranking Democrat Dingell (Mich.), which many Tauzin-Dingell opponents hailed as victory in that TechNet didn’t actually endorse controversial legislation.

Controversial Mich. broadband development legislation came under attack at state Senate committee hearings and Ind. bill to broaden no-call list exemptions was pulled by its sponsor as state legislatures got down to business in their 2002 sessions. Meanwhile, new bills on telemarketing, spam, wireless taxation, and regulatory processes were introduced around country.

House Commerce Committee ranking Democrat John Dingell (Mich.) called on FCC to investigate AT&T’s recent increase in Universal Service Fund (USF) line-item fee for residential customers, but Chmn. Tauzin (R-La.) is considering congressional action rather than waiting for Commission response. Dingell urged FCC Chmn. Powell in letter dated Jan. 7 specifically to “open the books and records” of AT&T while raising questions whether long distance companies in general were using fee to “gouge” customers. Committee spokesman Ken Johnson said Tauzin “is giving serious consideration to holding congressional hearings” on AT&T decision to raise fees: “He will make a final decision after consulting with [Telecom Subcommittee] Chairman Upton [R- Mich.], but clearly we are very concerned about the impact the fee hike would have on consumers nationwide.”

FBI’s National Infrastructure Protection Center (NIPC) said Microsoft patch designed to fix vulnerabilities in Windows XP universal plug-and-play (UPnP) system was in fact sufficient to curtail threats. After NIPC issued warning about vulnerability Dec. 21, urging users to apply patch, next day it made more recommendations to minimize risks from vulnerability, which it said could lead to denial of service attacks or other system compromises. UPnP vulnerability also is present in Windows Millennium Edition, Windows 98 and Windows 98SE. NIPC said it, along with federally funded CERT Coordination Center (CERT/CC), examined technical material provided by Microsoft and determined patch was effective. “Although neither NIPC nor CERT/CC has actually laboratory tested the patch, we are satisfied that it corrects the problem that could lead to system compromise and affords substantial and adequate protection from the UPnP vulnerability that could lead to denial of service attacks,” NIPC said. Its Dec. 22 warning recommended that users manually disable UPnP service if it wasn’t being used, in addition to installing patch.