Telephone companies in 10 states will receive an estimated $283,057 in nonrural universal service support in 2004, the FCC Wireline Bureau said in a report issued Dec. 24. The report shows nearly half of the nonrural funding goes to Miss. -- $131,242. The other states where carriers are expected to receive funding are Ala., Ky., Me., Mont., Neb., S.D., Vt., W.Va. and Wyo. The bureau released an order updating line counts and other data used to calculate nonrural high-cost support and issued a spreadsheet showing funding state by state -- CC Doc. 96-45.

Two former Clinton Administration officials were credited last month with saving a rural broadband loan program, but due to a shortage of funds among the effort’s beneficiaries, their lobbying efforts were performed free of charge. Former NTIA Dir. Greg Rohde and former Rural Utilities Service (RUS) Dir. Christopher McLean in 2003 grossed more than $200,000 from companies involved in rural broadband issues, Rohde revealed last week in lobbying disclosure filings with the Secy. of the Senate. However, he told us that the lobbying he did in the Senate to save the RUS broadband program was done pro bono, as the lead entity in the effort, the Wireless Communications Assn. International (WCAI), couldn’t afford to pay them, a difficulty confirmed by WCAI Pres. Andrew Kreig.

The 9 Democratic candidates for President seldom, if ever, mentioned the term “UNE-P” on the campaign trail, nor are local phone competition issues addressed. While telecom policy isn’t a central issue in the candidates’ stump speech, universal broadband frequently is championed. Former Vt. Gov. Howard Dean (D) also sparked a great deal of attention with recent comments suggesting a need for telecom “re- regulation.” Retired U.S. Army Gen. Wesley Clark has vowed to eliminate NTIA and fold its essential operations into the Commerce Dept.’s Technology Administration.

Several senators wrote to the Federal-State Joint Board on Universal Service leadership to argue against a primary line restriction for the universal service fund (USF). In a Dec. 18 letter to FCC Comr. Abernathy, joint board federal chmn., and Alaska Regulatory Comr. Nanette Thompson, state chmn., the senators argued that limiting USF to the primary line would deny rural consumers equal access to telecom services. The letter was signed by Senate Communications Subcommittee Chmn. Burns (R-Mont.), Senate Minority Leader Daschle (D-S.D.) and Sens. Dorgan (D-N.D.), Johnson (D-S.D.), Baucus (D-Mont.), Snowe (R-Me.), and Lincoln (D-Ark.). It said a primary line restriction would force rural customers to pay “exorbitant rates” for 2nd phone lines or wireless service. It said the Joint Board was considering imposing the primary line restriction, but hadn’t made any formal recommendations at this point. “Rural consumers want and need affordable multiple connections -- often from multiple providers -- just as much as consumers in urban areas,” the letter said. “The fact is that there is nothing reasonable or comparable about denying rural people access to 2nd lines or cellphones.” A primary line restriction would limit rural carriers’ ability to service debt on facilities approved by regulators and built, the senators wrote. They said small business could be badly hurt, since many needed more than one line. “We understand your concerns about the size of the program, but disagree with the need to take this drastic step of limiting support to a primary line,” the letter said.

The FCC unanimously approved rules Wed. to improve administration of its e-rate program, including allowing $420 million in unused schools and libraries funds to be carried forward for disbursement in 2003. The Commission at its agenda meeting also adopted procedural safeguards, including: (1) Barring the transfer of equipment purchased with universal service discounts to other locations for 3 years after purchase, except in limited cases, such as a school’s closing. (2) Increasing the transparency of updating an annual list of services eligible for support. (3) Supporting internal connections upgrades and replacements no more than twice every 5 years, except for basic maintenance services.

Cox, which for 6 years has advocated the benefits of circuit-switched telephony, introduced voice-over-Internet protocol (VoIP) in the Roanoke, Va., area, where it will go head-to-head with Verizon. But unlike many cable players that in recent days have announced VoIP as their first voice offerings, Cox sees its long-term strategy as more of a hybrid, with the circuit switches serving as a backbone for a national architecture and VoIP deployment in smaller markets where its relatively low startup costs make it the more attractive option.

Alltel, Sprint and Western Wireless told the FCC they backed Virginia Cellular and Highland Cellular petitions for eligible telecom carrier (ETC) status in Va. The companies stressed that the Commission’s decision on the ETC applications would set precedent for future petitions and was “likely to be influential” in the Federal-State Joint Board on Universal Service’s consideration of the ETC designation process in the portability proceeding. The board is developing a recommendation in the proceeding on high-cost portability. The companies urged the FCC “to bear in mind that some of the voluntary commitments offered by the Virginia applicants may have general applicability but others should not necessarily be applied to other ETC applicants or converted into standards of general applicability.” Specifically, the companies said they had concerns about Virginia Cellular’s voluntary commitments to spend high-cost funds to upgrade facilities and reach out to underserved areas. “To be sure, the Act requires all ETCs to use all funds only to support, maintain and upgrade facilities used to provide supported services,” the companies said. They said all ETCs should be required to certify that they were using funds properly. “But this does not mean that competitive ETCs should be required to use all high-cost funding for incremental capital expenditures, since ILECs are not subject to the same requirement.” They said that while Virginia Cellular had filed its construction plans publicly, many competitive ETCs viewed such data as very sensitive and would seek confidential treatment, if they filed it at all. “ETC applicants should not be required to make any showing regarding construction plans; at most, any such information voluntarily offered by an ETC applicant should be considered as a factor in the public interest analysis,” Western Wireless and the others said. The companies also supported Virginia Cellular commitments to comply with the CTIA voluntary code of conduct for service quality and to provide annual updates of consumer complaints. Alltel, Sprint and Western Wireless said they already adhered to that voluntary code. “However, we submit that neither of these voluntary commitments should be converted into mandatory requirements,” they said. “Rather, they should be considered as among the many potentially relevant factors in a ‘public interest’ analysis for ETC applications in rural ILEC areas.”

The regulatory treatment of voice-over-Internet protocol (VoIP) shouldn’t be “detrimental to the underlying network,” OPASTCO said in a statement it submitted Mon. for the record to the FCC’s VoIP Forum Dec. 1 (CD Dec 2 p1). “Disparate regulatory treatment that favors one method of providing voice service over another not only violates the principles of technological and competitive neutrality, it can place at risk the reliability of carriers’ underlying networks,” it said. OPASTCO expressed concern that although “at some point” most VoIP service providers “avail themselves of the highly reliable public switched telephone network (PSTN) to originate, transport or complete voice calls,” they “offer little or no financial support for the growth and upkeep costs of the PSTN.” It said long-term “favorable” regulatory treatment of VoIP service providers would “undermine the reliability of the nation’s ubiquitous telecommunications network.” It also expressed concern about the future of the Universal Service Fund (USF), saying if VoIP providers were exempted from contributing to the USF, “customers of other providers will have to pay more in order to sustain the integrity of the Fund. This places the Fund’s future viability at risk, and runs counter to Section 254(b)(5) of the 1996 Act, which calls for ’specific, predictable and sufficient’ mechanisms to preserve and advance universal service.” OPASTCO argued that the adoption of VoIP technology shouldn’t absolve any service provider of the obligation to compensate LECs adequately for access to the local loop. It criticized VoIP providers’ refusal to pay access charges, saying the VoIP technology did “not reduce the costs incurred by small carriers when they provide access services for these calls.” It said that although VoIP providers claimed to compensate LECs for access costs through the rates they paid as end users, such rates were “not designed to recover LECs’ costs of providing access.” OPASTCO said since many members obtained more than 60% of their operating revenue from access charges and universal service support mechanisms, “without adequate cost recovery from these revenue sources, the ability of small LECs to continue providing basic services at affordable rates would be seriously compromised” and would inhibit them from investing in the network upgrades necessary to provide advanced services. OPASTCO urged the Commission to “adhere to the principles of competitive and technological neutrality in order to avoid government policy, rather than consumer choices, determine the winners and losers in the marketplace. Clearly, services that provide direct substitutes for each other should not be subject to different regulatory classification.”

UBS began coverage of the rural LEC sector Fri., adding CenturyTel with a Neutral 1 rating, Citizens Communications with Neutral 3 and Commonwealth Telephone with Reduce 2. In a research report, analysts said: “RLECs are entering a period of increased regulatory uncertainty as access charge and Universal Service Fund reform move to the fore. While we do not expect a resolution of these issues until late 2004 at the earliest, the process itself and the likelihood of a negative outcome should increase volatility in RLEC shares.” The report said there were positives in the rural area such as: (1) Strong free cash flow that would drive debt reduction. (2) Less competition. (3) Greater margin stability. However, there also were investment concerns such as: (1) “RLECs are acquisitive operators” with additional access line purchases likely. “Although most of the operators are well versed in merging acquired operations, integration, regulatory and financing risk remains high.” (2) RLECs generated 40-50% of their total revenue from network access fees paid by long distance carriers. That offers greater stability in revenue and profits but creates risk as the FCC begins to more closely examine the USF and intercarrier compensation regimes. (3) Competition will grow, with wireless substitution already making an impact on long distance usage.

Cable executives told Wall St. analysts and investors Thurs. that they were in a better position to deliver the next generation of IP-based telephone services than traditional phone companies and newer companies such as Vonage. In presentations at a UBS media conference in N.Y.C., the MSOs outlined their rollout plans and said they had a competitive advantage. All said the startup costs were minimal, given that most already had fully upgraded their cable plants, had “excess capacity” and could ride voice on top of their high-speed data.