Reps. Boucher (D-Va.) and Terry (R-Neb.) got a nod for their Universal Service Fund (USF) measure from the Independent Telephone & Telecom Alliance (ITTA) Mon. Although Congress is about to adjourn, the bill is likely to reemerge next year, and the group wanted to make clear its support, a spokesman said. The group sent letters to both congressmen expressing support for provisions that would allow carriers to use USF for funding broadband networks.

The FCC’s Office of Inspector Gen. (OIG) targeted $11.5 million in potentially improper payments made in the E-rate program, according to the OIG’s report to Congress on the 6 months ending Sept. 30. “The process to recover these funds is underway,” Inspector Gen. Kent Nilsson said in the report. Audits of 53 recipients of e-rate discounts, mostly school districts, found several ways they hadn’t followed FCC rules. Among them: Not having enough budgeted to pay the proper share of costs of E-rate funded services or equipment; Inability to account for the funded equipment; Incorrectly calculating eligibility for the discount percentage it received; Billing inaccurately or without preparation; Lacking documentation. Other OIG activities outlined in the report: (1) The OIG expanded audits during the 6-month reporting period to other Universal Service Fund programs, such as high cost, rural health care and low-income programs. (2) The FCC didn’t get money from Congress in the fiscal 2007 budget to beef up its auditing staff, but the agency will again ask for more funds for the FY2008 budget. “The primary obstacle to an effective, independent oversight program has been, and continues to be, inadequate audit and investigative resources so that OIG can conduct its own audits and provide adequate audit support to investigations,” the report said. (3) OIG modernized its office technology during the 6-month reporting period because it had “lagged behind the rest of the Federal government.” (4) The OIG opened a series of audits into the Telecom Relay Service, which has never been subject to a “comprehensive audit,” the report said. “Approximately $470 million are contributed annually to a dozen providers by 2,800 common carriers which are paid by telephone customers through their monthly telephone bills,” the OIG said. Audits will end by April, the report said.

The FCC’s Office of Inspector Gen. (OIG) targeted $11.5 million in potentially improper payments made in the E-rate program, according to the OIG’s report to Congress on the 6 months ending Sept. 30. “The process to recover these funds is underway,” Inspector Gen. Kent Nilsson said in the report. Audits of 53 recipients of e-rate discounts, mostly school districts, found several ways they hadn’t followed FCC rules. Among them: (1) Not having enough budgeted to pay the proper share of costs of E-rate funded services or equipment. (2) Inability to account for the funded equipment. (3) Incorrectly calculating eligibility for the discount percentage it received. (4) Billing inaccurately or without preparation. (5) Lacking documentation. The OIG expanded audits during the 6-month reporting period to other Universal Service Fund programs, such as high cost, rural health care and low-income programs. The FCC didn’t get money from Congress in the fiscal 2007 budget to beef up its auditing staff, but the agency will again ask for more funds for the FY2008 budget. “The primary obstacle to an effective, independent oversight program has been, and continues to be, inadequate audit and investigative resources so that OIG can conduct its own audits and provide adequate audit support to investigations,” the report said. OIG modernized its office technology during the 6-month reporting period because it had “lagged behind the rest of the Federal government.”

The La. Supreme Court upheld the monthly phone line fee used to support the state universal service fund, ruling that the assessment isn’t a tax and is something the PSC can impose. The court was ruling on a T-Mobile appeal of the phone line fee, which must be collected by all telecom carriers including wireless. The court said the assessment isn’t a tax, because it’s used exclusively for a telecom- related public policy purpose. The PSC established the state universal service fund in 2004 after learning of small towns in the state that couldn’t get phone service. The fund offers support to extend landline or wireless service to unserved towns where construction costs exceed $1,500 per line, and to support high-cost areas across the state.

Prepaid phone cards fill a growing need, giving newcomers to the U.S. a low-cost way to place calls to their homelands, economist Robert Shapiro said in a report to be released today (Wed.). Shapiro, a former Clinton Administration official, said accelerating immigration since 1990 fuels need for low-cost international long distance service. Immigrants made up 41% of U.S. population growth 1990-2000 and 45% 2000-2003, and many have low incomes, he said in an interview. His study “is an analysis of how markets respond to gaps in basic services for lower income people,” Shapiro said. International calling isn’t covered by the Universal Service Fund Lifeline and Link-Up programs for low income consumers because until recently few in that demographic made international calls, he said. In his survey for IDT, whose telecom services include sale of prepaid calling cards, he looked mainly at price, and didn’t address USF reform, he said. But results indicate there may be no need to apply USF subsidies to international calling, thanks to a “market solution” - phone cards, Shapiro said. Prices for a 30-min. international call average $6.21 for prepaid cards, $7.59 for dial-around, $9.82 for landline and $17.13 for mobile service. Shapiro looked at 11 nations to which emigres frequently make calls, such as China, Mexico, El Salvador and the Philippines. Prepaid cards tend to cost less because they remove the “risk of nonpayment,” he said.

India wants bids to build mobile infrastructure in rural areas, it said Tues. Buildouts will be subsidized partly by a universal service obligation fund like that in the U.S., Indian media reported. Bidding will be in 2 rounds. Winning companies will have 2 months to begin construction.

State regulators are applying a lighter regulatory hand to rates of their largest incumbent telcos, which face heavy competition, than to the rates of the smallest carriers that face little or no competition. Rate-of-return regulation is all but extinct for the largest incumbents, but still sees wide used for midsized and small companies. CLECs come under minimal regulation in 44 states; 6 states impose some CLEC rate constraints. These are results from a 50-state survey of states retail rate regulation by our affiliate State Telecom Regulation Report. The white paper accompanying this issue gives detail by state of retail rate-regulation policies (State Retail Rate Regulation of Local Providers: A Communications Daily White Paper).

State: Alabama Company: All IncumbentsMethod Now in Use: Price Caps (1996)Notes: Basic exchange and access rates under nonindexed caps. Other services can rise up to 10% a year total. Rate design subject to PSC review. Earnings not regulated. No expiration date. A state law allowed incumbents, as of 2005, to opt into a more flexible capping system basing rate regulation on population density. This plan deregulates retail rates other than residential basic exchange in dense urban areas. In less dense suburbs, rate rises are limited to 15% annually through 2006, 20% in 2007 and 25% after that. In rural areas, rises are limited to 5% through 2007, gradually reaching 15% by 2010. A 2005 state law gave incumbents another option: A phase-out of retail rate regulation, deregulating bundled and contract services statewide in July 2006 and detariffing most retail services in Feb. Starting 2008, the law will let incumbents facing at least 2 local competitors opt out of state retail rate regulation. The PSC opened a proceeding to reevaluate its entire regulatory system, hoping to persuade incumbents to remain under state rate regulation. But rural incumbents in Aug. indicated no interest in changing regulatory arrangements, and several opted for phased deregulation under the 2005 law. Nine rural incumbents opted to remain under price capsState: Alabama Company: CLECsMethod Now in Use: Rates Flexibly Regulated Notes: CLEC rates presumed competitive. CLECs get state certificates by showing technical, financial and managerial competence. They must file tariffs and give notice of rate changes. CLEC tariff changes get regulatory staff review but normally aren’t questioned. Starting Feb., CLECs can opt for detariffing of most retail services.--------------------------------------------------State: Alaska Company: All Incumbents Method Now in Use: Rate of Return Notes: All large and most small incumbents are under rate of return regulation. In noncompetitive markets, rate reduction -- and boosts up to 6% -- can be decided in as little as 45 days under rate of return principles in annual filings. Other changes require full rate case. In markets where at least one facilities-based competitor operates, dominant incumbents can reduce rates or introduce new bundles on 30 days’ notice without prior state approval. Incumbents can set limited-duration promotional rates to match competition without prior state approval. In markets where an incumbent faces 2 or more facilities-based local exchange competitors or has lost over 40% market share, and provides essential exchange access to less than half the market, the incumbent is deemed nondominant and gets broad pricing flexibility for all retail services other than single-line basic exchange. Basic exchange in such nondominant competitive markets can rise up to 8% annually. Nondominant incumbency can be decided by market or by specific services within a market. But revenue from all services in competitive markets still counts in rate-of-return calculations. Incumbents with less than $500,000 annual revenue can opt out of state rate and earnings regulation on approval by their ratepayers. Rates and earnings of incumbents with less than $50,000 annual revenue are deregulated.State: Alaska Company: CLECs Method Now in Use: Rates Flexibly Regulated Notes: CLEC rates presumed competitive. CLECs get state certificate by showing technical, financial and managerial competence. They must file tariffs and give 30 days’ notice of changes. CLEC changes receive regulatory staff review but normally aren’t questioned.--------------------------------------------------State: Arizona Company: Qwest Method Now in Use: Rate of Return with Price Caps (2001) Notes: Carriers under earnings-based regulation pegged to rate of return on “fair value” of rate base. Regulators in 2001 set up price capping system to give Qwest some pricing flexibility. Price cap system amended in March 2006 to boost flexibility. Basic service rates frozen. Nonbasic and emerging competitive services can rise up to 25% a year and competitive services are priced flexibly. But the 2 “baskets” are subject to revenue caps for all services. Revenue from all services count in rate-of-return calculations. Revised plan changed the services in the baskets and eliminated productivity indexing. Next review due early 2009.State: Arizona Company: Other Incumbents Method Now in Use: Rate of Return Notes: Other incumbents are under fully-tariffed earnings-based regulation pegged to rate of return on “fair value” of rate base. They don’t have pricing flexibility. State: Arizona Company: CLECs Method Now in Use: Rates Flexibly Regulated Notes: CLEC rates presumed competitive once multiple competitors operate in a market. CLECs get state certificate by showing technical, financial and managerial competence. They must file tariffs and give 30 days’ notice of changes. All changes get regulatory staff review and major changes may be subject to hearings; minor changes generally aren’t investigated. State constitution requires a relationship between CLEC rates and “fair value” of their rate base, but a 2001 state Supreme Court ruling gave state regulators full discretion to decide how to determine fair value of CLEC assets to apply it in setting CLEC rates. Fair value issues are decided case by case as CLECs file tariffs for new services and rate changes.-------------------------------------------------- State: Arkansas Company: AT&T, Windstream, CenturyTel of Central Ark. Method Now in Use: Price Caps (1997) Notes: Basic exchange and switched access under caps indexed to 75% of GDP-PI. Rates for all other retail services deregulated. Companies can request basic exchange rate deregulation in exchanges with effective local competition. AT&T in late 2004 and early 2005 received basic exchange rate deregulation in its competitive urban markets. Earnings not regulated. No expiration date. State: Arkansas Company: CenturyTel of Northwest Ark. Method Now in Use: Rate of Return Notes: Rate of return regulation applies to this business unit, created to take over about 100,000 lines bought from Verizon in 2000. It can switch to price caps but hasn’t done so.State: Arkansas Company: Other Incumbents Method Now in Use: Price Caps (1997) Notes: All other incumbents operate under price caps permitting basic exchange services to rise annually by lesser of 15% or $2 per line monthly. All other service rates deregulated. Earnings not regulated. No expiration date. State: Arkansas Company: CLECs Method Now in Use: Rates Not Reviewed Notes: CLEC rates presumed competitive. CLECs get state certificate by showing technical, financial and managerial competence. They must file tariffs and give 30 days notice of changes but changes normally aren’t reviewed. All CLECs must contribute to state universal service fund regardless of whether they're eligible to receive subsidies from it.-------------------------------------------------- State: California Company: AT&T, Verizon, Surewest, Frontier Method Now in Use: Rate Deregulation (2006) Notes: Residential basic exchange and Lifeline under nonindexed caps through 2008. Rates for all other retail services deregulated in Oct. 2006, except that companies must file tariffs and give customers 30 days’ notice of rate increases. Earnings not regulated. State: California Company: Other Incumbents Method Now in Use: Rate of Return Notes: Eighteen other incumbents are under fully tariffed rate-of-return regulation. PUC 1997-2004 reviewed rates of all small companies. Commission required earnings-regulated small incumbent to file a rate case within 6 years of its last review to keep getting state high-cost subsidies. Otherwise their state high-cost support will be phased out. Eight small incumbents chose not to file rate cases and no longer get state high-cost subsidies. State: California Company: CLECs Method Now in Use: Rates Not ReviewedNotes: CLEC rates presumed competitive. CLECs get state certificate by showing technical, financial and managerial competence. They must file tariffs and give customers 30 days’ notice of rate increases.--------------------------------------------------State: Colorado Company: Qwest Method Now in Use: Price Caps (2005) Notes: First residential line and first 5 business lines under nonindexed caps. Intrastate long distance rates deregulated statewide. Intrastate toll can be deregulated in markets with sufficient competition. Rates for business services to customers over 5 lines and optional or discretionary services deregulated in state’s 5 largest cities, and other markets where sufficient competition is shown. Earnings not regulated. State: Colorado Company: Other Incumbents Method Now in Use: Rate of Return Notes: All other incumbents are under fully tariffed rate-of-return regulation. Other incumbents can petition for alternative regulation but none have. State: Colorado Company: CLECs Method Now in Use: Rates Flexibly Regulated Notes: CLEC rates presumed competitive, except that residential basic exchange can’t exceed $14.74 cap set by state law for all providers. Bundled rates can’t exceed cumulative stand-alone rates of services comprising bundle. CLECs get state certificate by attesting to their technical, financial and managerial competence; affidavits presumed truthful. CLECs at start of service have option to file tariffs or price lists. Changes require 14 days’ notice. Tariff and price list changes get regulatory staff review but normally aren’t challenged. CLECs can opt into program applied to Qwest.-------------------------------------------------- State: Connecticut Company: AT&T Method Now in Use: Price Caps (1996-2007) Notes: Noncompetitive services under caps indexed to GDP-PI; caps can rise 1/2 the amount GDP-PI exceeds 5% a year. Competitive services flexibly priced. Penalties assessed for failing to meet service quality targets. Earnings not regulated. Program last reviewed in 2001 but no changes made. Next review due before 2008. State: Connecticut Company: Other Incumbents Method Now in Use: Rate of Return Notes: Fully-tariffed rate-of-return regulation. No proceedings pending to change that. Regulators gave Verizon some pricing flexibility under RoR in 2001. Verizon in 2003 proposed price cap change, later withdrew application. Regulators in Sept. 2005 reaffirmed continued price flexibility through 2007. State: Connecticut Company: CLECs Method Now in Use: Rates Not Reviewed Notes: Rates presumed competitive. CLECs get state certificate by showing technical, managerial and financial competence. They must file tariffs and give 7 days’ notice of rate changes, but changes normally aren’t reviewed. -------------------------------------------------- State: Delaware Company: Verizon Method Now in Use: Price Caps (1994-2011) Notes: Basic services under caps indexed to GNP-PI minus 3%, plus approved exogenous costs. Competitive services flexibly priced. Earnings not regulated. In June 2005, PSC concluded review of plan by agreeing to extension without change until Sept. 2011. State: Delaware Company: Other Incumbents Method Now in Use: None. State: Delaware Company: CLECs Method Now in Use: Cost-Based Rate Floor Notes: Rates presumed competitive if they stay above floor set at incremental cost. CLECs get state certificate by showing technical, managerial and financial competence. Must post $10,000 performance bond or irrevocable standby letter of credit for equivalent amount. Must file tariffs or price lists, with 3 days’ notice of rate and service changes. Rate changes above cost floor normally get no further review. -------------------------------------------------- State: District of Columbia Company: Verizon Method Now in Use: Price Caps (2000-2006) Notes: Basic residential rate frozen. Other basic residential and business services can rise up to 10% a year. Discretionary services can rise up to 15% annually. Percentage revenue rise from such boosts can’t exceed annual inflation rate. Competitive service rates deregulated, but can’t be below incremental cost. Earnings not regulated. Plan, to expire in 2004, extended through 2006 under pact giving Verizon small local rate increase. No current proceeding on successor plan. State: District of Columbia Company: Other Incumbents Method Now in Use: None.

NASUCA adopted resolutions on Lifeline and inmate payphone services, at the state consumer advocate group’s annual meeting, held along with NARUC’s annual convention in Miami Beach. Meanwhile, NASUCA panelists addressed a Conn. decision declaring AT&T’s IP-based video service not to be cable TV, as well as telecom privacy and the Missoula Plan. NASUCA’s Lifeline resolution was close to one adopted by NARUC. It backed the same Lifeline Working Group recommendations and made similar recommendations on Lifeline promotion and outreach through public-private partnerships, state commissions, other gov agencies, and business. NASUCA’s payphone resolution said inmate interaction with family, friends and professionals is an important part of rehabilitation hurt by unreasonably high rates at inmate payphones. The resolution urged policymakers to ensure fair rates, encourage use of prepaid debit accounts as an alternative to collect calls, and cut or eliminate commissions that inmate payphone providers pay state or local corrections authorities for their contracts. On NASUCA panels, Bill Vallee, attorney with the Conn. Office of Consumer Counsel, said the Conn. Dept. of Public Utility Control (DPUC) misclassified AT&T’s video delivery system because it looked only at the interactive on-demand capability, ignoring AT&T’s plans to offer scheduled cable programming like ESPN and CNN. William Durand, exec. vp of the New England Cable & Telecom Assn., said the DPUC erroneously based its ruling on the video delivery technology, rather than the service. Vallee and Durand said the DPUC decision created an unfair, illegal regulatory imbalance. NASUCA had invited AT&T and Verizon to speak, but they didn’t send representatives. Of various federal suits seeking to stop state regulator inquiries into allegations that telecom companies violated customer privacy rights by unlawful cooperation with federal intelligence-gathering operations, Shayana Kadidal of the Center for Constitutional Rights said states are right to resist “intelligence gathering operations in the guise of law enforcement.” He said broad telephone surveillance actually harms national security because “it diffuses efforts by putting attention on those who pose little or no threat.” He also said it made no sense for the govt. to invoke the state secrets privilege after the National Security Agency’s phone surveillance program became common knowledge. On the Missoula Plan, Doug Kinkoph, XO Communications regulatory vp, said the plan “is overly broad and based on a suspect political and legal foundation.” The plan aims to keep carriers whole by shifting access revenue reductions onto consumers and the federal universal service fund, he said: “It'll present consumers with a $7 billion bill.” It also will impair state jurisdiction over interconnection and prematurely deregulate transit traffic, he said. But Joel Shiffman of the Me. PUC staff called the plan “a reasonable but not perfect transition to the broadband world,” because it will eliminate arbitrary distinctions among jurisdictions and traffic types. Work is needed in some areas, like with “early adopter” states that moved to reform intercarrier compensation, he said. -- HK

MIAMI BEACH -- Comcast CEO Brian Roberts told state regulators consistent, even-handed regulatory policies are the key to expansion of facilities-based cable competition into the small-business market. Roberts, speaking at the NARUC annual convention here, said regulators also need to address the remaining barriers to competition.