August 1997

The Federal Communications Commission Issues Universal Service Rules

By Ruth Holder,
reporting for the Alliance For Public Technology

On May 7, the Federal Communications Commission (FCC) beat its Congressionally-mandated deadline by one day, and voted to adopt a plan implementing the universal service provisions of the Telecommunications Act of 1996. The FCC's order essentially endorsed the recommendations of the Federal-State Joint Board created by the Act.

Universal service funds have historically been paid to telephone companies, not to individual subscribers, based on the difference between the cost of providing service and the amount charged to the consumer. The FCC order allows all carriers to be eligible for support from the fund regardless of the technology used (meaning wireless carriers can be eligible too), provided the carriers are offering (and advertising to the general residential market) all of the essential services in the basic package and using their own facilities, at least in part, to provide those services.

Each state has the authority to designate which carriers are eligible for universal service support, and the responsibility of monitoring rates to ensure "affordability," a universal service concept first articulated in the 1996 Act.

Package of Essential Services

The FCC defined the basic package of essential services to be supported by Federal universal service support mechanisms to include:

1. Voice grade access to the public telephone network, with the ability to place and receive calls;
2. Touch-tone service;
3. Single-party service;
4. Access to emergency services, including 911 and Enhanced 911 (which conveys a caller's location to emergency personnel);
5. Access to operator services;
6. Access to interexchange (long distance) services;
7. Access to directory assistance; and
8. Lifeline and Link Up services for qualifying low-income consumers in every U.S. state, commonwealth, and territory.

Evolving Definition

While the package ofservices does not include access to advanced service - like high-speed data, or even fax capability, much less interactive video - for residential customers, nor does it recognize special needs of individuals with disabilities, the 1996 Act defines universal service as an "evolving level of telecommunications services." The Federal-State Joint Board will convene again by January 1, 2001, to review the definition of universal service.

Factors that influence whether services will qualify for universal service treatment include the extent to which they:

1. Are essential to education, public health, or public safety;
2. Have been subscribed to by a substantial majority of residential customers;
3. Are being deployed in public telecommunications networks; and
4. Are consistent with the public interest, convenience, and necessity. There will again be an opportunity for public input when the definition is reviewed.

Individual states are free to go farther with their own universal service programs, as long as they meet the bedrock federal standards. The formal universal service proceeding process in each state will provide opportunities for communities to tell their own state regulators what additional services are essential to them. Consider what services are already widely deployed in your area but are not included in the federal list; also, consider what services you find to be essential, whether widely deployed or not. (It never hurts to ask!)

Schools and Libraries Win Big

The big winners in the FCC's order are K-12 schools and libraries, which along with rural health care providers are the first institutions ever to qualify for universal service benefits that otherwise focus on residential telephone customers. Schools and libraries will be eligible for discounts on all commercially available telecommunications services, not just those in the basic package, including access to the Internet and necessary internal wiring-the first time Internet services have been included in any universal service order. In another departure from history, these services can be provided by non-common carriers (like Internet service providers) as well as telecommunications carriers and still qualify for discounts supported by the universal service fund.

Tell Your School and Library

Schools and libraries can qualify for discounts ranging from 20 to 90 percent off the best rates obtained through competitive bidding processes, but only if they apply for them. The federal fund supporting schools and libraries is capped at $2.25 billion per year, with most of the funds available on a "first come/first served" basis, and but a small portion reserved for allocation with consideration given to need. Advocates are concerned that the schools and libraries who most need the support will be left out, since they may lack the awareness and administrative support to apply.

Start Planning Now

Unless the FCC's order is challenged and stayed by an appeals court (as many industry observers predict), discounts will be available beginning January 1, 1998. The application period was rumored to begin as early as July of 1997, but application forms are not yet available and the date for accepting applications has not yet been set. Regardless, an eligible school or library's planning should begin now.

Eligible schools include all elementary and secondary schools (public, private, and parochial) as defined by the Elementary and Secondary Education Atof 1965, as long as they have endowments of less than $50 million. Eligible libraries include public or non-profit libraries meeting the definition in the Library Services and Technology Act who operate with a budget separate from any institution oflearning. (School libraries will be funded as part of the school.)

The Application Process

The first step in the application process is a technology inventory and assessment of the applicant's current capacity and plans for the future with respect to the availability of computer equipment and modems; internal network connections and volunteer efforts to install them; computer communications software; experience and training for staff; computer maintenance contracts; electrical system; and specific plans for using the technology and integrating it into the curriculum. Independent approval of the technology plan by a state education or library agency or other as-yet undetermined reviewer will be required.

The services to be purchased must be described in the application.

The applicant must also certify that it is an eligible institution; that discounted services will not be resold and will be used only for educational puiposes; and that the applicant has complied with all applicable state and local procurement processes and will continue to do so.

A certification by the eligible institution's procurement officer as to economic need will be required in order to calculate the discount. Economic need is measured by the percentage of students eligible for the national free and reduced school lunch program, which can be calculated on a system-wide or on an individual school or library basis (with libraries using the school district closest to their location). The other factor in determining the discount level is whether the institution is located in an urban area, or a rural (high-cost) area as defined by the Department of Health and Human Services' Office of Rural Health Policy, using the Office of Management and Budget's Metropolitan Statistical Area (MSA) designation.

How Big is My Discount?

Institutions with less than 1% of its students on the school lunch program will receive a 20% discount if located in an urban area, and a 25% discount if in a rural area. Those with 75% or more of its students qualifying for the lunch program will receive the 90% discount, whether urban or rural. Those in the middle will receive discounts ranging from 40% to 80%, according to the FCC's discount matrix for interstate services.

Finally, but perhaps most importantly, schools and libraries can only get these discounts if their state has adopted a similar program for intrastate services which matches the FCC discounts. Every state should be instituting a universal service proceeding to do so, providing an opportunity for public input.

Non-Profit Rural

Health Care Providers The FCC's rules also provide discounted communications services to all public and not-for-profit health care institutions located in rural areas and serving rural residents, with a $400 million annual cap on the fund. An eligible health care provider may obtain telecommunications services at a transmission capacity speed of up to a T-1 line (1.544 million bits per second,orMbps) at prices comparable to those paid by commercial customers for like services in the nearest urban area in the same state with more than 50,000 residents. Support is also available for distance-based charges associated with the services, equal to the cost of connecting to the city used to calculate the discounted rate. Rural health institutions who do not have toll-free access to an Internet service provider are also eligible to receive the lesser of 30 hours per month of Internet access at local calling rates, or $180 per month in credits for long distance charges.

The FCC declined to prescribe what medical services would be covered by the rule, leaving that to health care workers, but they did specify the inclusion of public health services such as education and data collection. The FCC did conclude that it could support infrastructure development-like laying fiber lines, for example-in areas where health facilities cannot access high speed services, but will issue a future notice soliciting input on whether and how to institute such a program.

Like schools and libraries, eligible health care providers must seek competitive bids for eligible telecommunications services to get the best possible rate before discounts are applied.

Buying Coalitions: Aggregating Demand

The FCC's order says that eligible schools, libraries, and rural health care providers may form buying coalitions to aggregate demand for services and obtain the best volume discount or competitive rate before any of the above discounts are applied. However, it appears that public (governmental) entities are the only institutions other than eligible schools, libraries, and health care providers who may also be included in such a coalition without exception. Ineligible institutions, such as community based organizations and other private nonprofits, may be included in a buying coalition only if the coalition is buying services at tariffed or market rates. (Ineligible entities do not qualify for discounts in any event; they would only benefit from the best negotiated rates enabled by the aggregated market power.)

APT and several of its members are concerned that this provision acts against the compelling public policy argument that a community should be encouraged to collaborate, working together to aggregate all demand for services which serve the public good. Private nonprofits such as emergency relief agencies, community networks or computing centers,job training facilities, economic development initiatives, information and referral services, and higher education institutions all share the characteristics of doing essential work-in some cases, the work of government-but lack the market power of for-profit companies.

But this provision of the FCC order is not crystal clear, and at least some FCC staff members have advised that it was not the intent to exclude essential nonprofits from buying coalitions. APT and an ad-hoc coalition of other public interest organizations are seeking clarification of this provision; those interested should contact APT.

Discounts for nonprofit organizations similar to those for schools and libraries were not included in the 1996 Act. However, there is an opportunity at the state level to argue for discounts for organizations long accustomed to filling the gap between government and the marketplace. For example, California's universal service order provides for discounts to community-based organizations who are tax exempt and offer he alth care,job training,job placement,or educational instruction, thus directly or indirectly benefitting the public at large.

Concerns for Native Americans

While telephone subscribership is lower on Native American Indian reservations than any other definable location or demographic, there is concern among public interest advocates that the FCC order may inadvertently exclude some because of jurisdictional issues. Under the Indian Commerce Clause, only the federal government, not state governments, can establish rules (in addition to Tribal governments, of course). Many tribes operate their own cooperative telephone companies, and some have their own regulatory bodies. Yet states have been given the authority to designate carriers eligible for universal service support, monitor rates to ensure affordability, establish intrastate programs for schools and libraries, and fulfill other overlapping obligations to strengthen and advance universal service. A concerned coalition is forming; those interested should contact APT.

Appeal Deadlines

The deadline for filing Petitions for Reconsideration with the FCC is July 17, 1997; the deadline for appealing to a court is 30 days later.

Rural, Insular, and High Cost Areas

Essentially, the FCC has deferred the writing of new rules for these locations. while the level of support for high cost areas will eventually be determined by using a forward-looking economic cost model, such a model has not yet been adopted. States are required to choose by August 15, 1997, whether they will conduct their own forward-looking economic cost studies, in which case they must be filed with the FCC before February 6, 1998. The FCC's own cost model will not be available until the end of 1997, at leasL

Existing support mechanisms for high cost areas will remain in effect until two additional rulemaking proceedings are conducted by the FCC.

Low Income Customers

In general, the FCC rules contain some victories for low income consumers. The federal Lifeline and Link Up programs, which have been in existence for a decade but had not been adopted everywhere in the U.S., are now mandated in every state, commonwealth and territory-irrespective of whether the state provides matching funds. (Lifeline waives a portion of the monthly telephone bill; Link Up reduces initial connection charges.) The Lifeline program is expanded to include toll-call limitation or blocking, at the customer's request, without service charges. Local telephone customers cannot be disconnected for non-payment of long distance charges, and telephone companies may not refuse to re-establish a Lifeline customer's local service because of a previous disconnection due to non-payment of toll calls. Partial payments made by a Lifeline customer are to be first applied toward outstanding local service charges, then toward toll calls.

The federal support will be available in all states and to all eligible camers, regardless of whether the state provides intrastate funds, although the FCC will maintain a "matching program" to incent state participation.

Advocates for low income consumers do have some concerns, however. The FCC ties the eligibility standard to whether the named subscriber participates in Medicaid, food stamps, Supplemental Security Income, federal public housing assistance or Section 8, or Low Income Home Energy Assistance programs. Given the "welfare reform" movement and a growing lowincome population who no longer qualify for such assistance, many individuals who need Lifeline support may not be able to get it. Toll-call limitation and the "no disconnect" rule only apply to Lifeline customers, although many nonqualifying yet low-income consumers need the service. States can, however, extend the rule to other customers.

Finally, many qualifying individuals do not receive Lifeline or Link Up support because they do not know the programs exist. The FCC has left thejob of educating the public to the states, worrying some that the awareness campaigns will be uneven, at best.

Why We Should Care

The Benton Foundation, in its "New Definition of Universal Service" summary, nicely sums up the public interest argument: "Benton views universal service not as welfare policy, but smart economic policy that protects ratepayers from paying for stranded investments in telephone networks, adds to the value of those networks, and improves the overall productivity, health, and education of society. Universal service policies maximize the size of telephone networks, making citizens more available to education, health and safety services; to businesses; to government; and to each other by reducing the financial burden oftelephone subscribership."

In other words, the whole is worth much more than the sum of its parts.

---

APT gratefully acknowledges andappreciates information provided by:

• American Library Association,
• American Telemedicine Association,
• Benton Foundation,
• Center for Media Education,
• Consumer Federation ofAmerica,
• Institute for Public Representation,
• Legal Aid Society ofDayton,
• New York Law School, and
• The Federal Communications Commission.

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