Universal service: problems, solutions, and responsive policies.

• Author: Hammond, Allen S., IV

1. THE IMPORTANCE OF UNIVERSAL SERVICE II. PROBLEMS WITH UNIVERSAL SERVICE III. PROBEMATIC POLICIES IV. PROPOSED SOLUTIONS V. FORBEARANCE, COMPETITION, INFORMATION SERVICES AND ARBITRAGE VI. EQUITABLE CONTRIBUTIONS FROM ALL PLATFORMS I. THE IMPORTANCE OF UNIVERSAL SERVICE

   Affordable access to telecommunications networks is extremely important to all Americans. (1) The federal universal service policy is critical to ensuring affordable access for low income Americans and those living in rural and high cost areas, and on tribal lands. (2) Consequently the nation's commitment to preserving universal service has been longstanding and continues to this day)

2. PROBLEMS WITH UNIVERSAL SERVICE

   Recently, many have begun to question whether the current version of the federal universal service program can be sustained. (4) Indeed, some observers insist that federal and state (5) universal service policies are in imminent danger of demise unless appropriate action is taken. (6) A declining supply of revenues from which the fees (7) are collected and an increasing demand for the fees that remain are identified as the immediate problems. (8)

   On the supply side, the method by which universal service has been funded through fees collected from the revenues of local and long distance wireline and wireless carriers, is being undermined in part by wireless competition, (9) the growing use of email, (10) and all distance service bundling. (11) The near term future of universal service is believed to be threatened by the growing adoption of VoIP as an alternative to wireline services.

   On the demand side, increasing requirements on the high cost fund by telecommunications carriers (12) and continuing requirements for funding of social inclusion subsidies for indigent, school-age, and rural Americans combine to place increasing strain on the funding process. (13)

3. PROBLEMATIC POLICIES

   In addition to the strain caused by market competition and social need, however, there are federal and state procompetition policies that cause substantial damage to the viability of universal service programs. (14)

   A policy of regulatory forbearance (15) has been used to increase competition for wireline voice services by exempting cable and VoIP services, and partially exempting wireless services, from paying universal service tees. This policy is said to be partly responsible for the rapid growth of wireless and broadband as well as the recent investment in VoIP. Yet, the policy has also resulted in an erosion of the subscriber base of traditional incumbent wireline providers who pay the bulk of the fees from which universal service funds are derived.

   The continuation of the regulatory forbearance policy has long term implications for the survival of universal service. The pursuit of such a policy could result in the exemption of all broadband providers from legacy Title II (telecommunications) and Title VI (cable) regulations, (16) as well as the preemption of state regulation by defining the providers as Title I information services. It is argued that this policy would protect fledgling broadband enterprises from costly and sometimes conflicting regulation. However, the policy also could eviscerate the universal service program as wireline carriers join their cable and wireless counterparts in the election to provide voice and other services as information service providers and avoid universal service obligations altogether.

   In addition, federal and state governments have sought to increase competition for rural carriers by allowing states to certify more carriers as eligible for federal high cost area subsidies. (17) The expectation has been that competition will result in lower prices for rural telecommunications services. The policy has resulted in a substantial increase in the demand for universal service funding at a time when revenues coming into the fund are decreasing. Simultaneously, the policy is said to undermine the ability of the rural incumbent wireline carrier (18) to compete because, while it must serve the entire area of license, the newly certified wireless and local exchange carriers are free to serve only the more lucrative portions of the service areas. (19)

4. PROPOSED SOLUTIONS

   Current proposals to address the universal service crisis focus on modifying the contribution process (supply side) and/or managing the funding process (demand side). (20) Efforts to modify and better manage the contribution process include: establishing (or repealing) an appropriate safe harbor for wireless providers; (21) eliminating the lag time between the reporting of revenues and the recovery of contribution costs; prohibiting the marking up of contribution costs on consumer bills; (22) choosing an alternative contribution methodology; (23) amending [section] 254 to allow federal access to intrastate revenues; (24) and applying the same universal service obligations to all carriers, service providers, and competitors. (25)

   Proposals to better manage the funding process include: reducing the number of rural carriers certified as Eligible Telecom Carriers ("ETCs"); (26) bolstering the effectiveness of Linkup and Lifeline; (27) and eliminating red tape while insuring the integrity of the schools, libraries, and rural health care support programs. (28) Many of these proposed solutions, while important, seem more akin to rearranging the deck chairs on the Titanic. As many observers have realized, the universal service system needs a more fundamental revision.

5. FORBEARANCE, COMPETITION, INFORMATION SERVICES AND ARBITRAGE

   While reform of the telecommunications universal service policy is clearly warranted, ignoring the impact of IP-enabled intermodal competition is counterproductive. In an era of IP-enabled convergence, ultimately, proposals and policies that solely focus on one technology platform will be less successful. Too often they will serve as an opportunity for regulatory arbitrage by firms seeking an advantage through exemption. The advent of IP-enabled broadband telecommunications, cable, and wireless platforms offering bundled voice, video, and data services provides a critical opportunity to harmonize a fundamental public interest goal across platforms. As the IP-enabled network platforms evolve and compete, how should the public goal of universal service be met?

6. EQUITABLE CONTRIBUTIONS FROM ALL PLATFORMS

   One of the more realistic proposals is to require that IP-enabled network providers pay into the universal service fund. The proposal, if adopted, would be technology-neutral, (29) less susceptible to regulatory arbitrage, and subscriber-friendly. (30) In doing so, the government would have to require that the fees be paid not on the application or service, (31) but on the connection, regardless of platform. (32) These fees would be used to subsidize indigent, inner-city, and rural American, as well as tribal land, broadband Internet access. (33) At the same time, efforts should be undertaken to manage demands on the fund by refining the ETC process and improving both the eligibility criteria for Lifeline and LinkUp and the disbursement requirements for schools, libraries, and rural health care funds.

   This universal service policy should be part of a more comprehensive strategy that has the following components: IP-enabled network providers should pay access charges consistent with whatever intercarrier compensation scheme is ultimately adopted; the public-switched network must continue to be supported to allow continuing innovation and evolution; the definition of basic service must incorporate affordable access to broadband for all Americans; and all network platform providers (telecommunications, cable, wireless, satellite, powerline) must contribute to the universal service fund. (34)

   Both the FCC, through its open proceedings on universal service, intercarrier compensation, and regulation of IP-enabled networks, (35) and Congress, through its anticipated consideration of VoIP (36) and revision of the Telecommunications Act of 1996, have an opportunity to address the issue of universal service in the context of intermodal competition in an evolving, IP-enabled network market environment. Hopefully, they will embrace the opportunity and establish a technologically agnostic, inclusive national universal service policy that will last.

   (1.) "The federal government's commitment to universal service is grounded in our belief that basic telecommunication services should be available to all Americans at rates that are affordable and relatively uniform." The Future of Universal Service: Ensuring the Sufficiency and Stability of the Fund: Hearing Before the Communications Subcomm. of the Senate Commerce, Science, and Transportation Comm., 107th Cong. (2002) [hereinafter 2002 Universal Service Hearing] (statement of Sen. Daniel K. Inouye). "[A]dditional users of the telephone network create benefits for everyone--the marginal user as well as everyone already on the network. Indeed, this powerful theory underlies our universal service policies and has served our country very well." Cell Phone Number Privacy: Hearing Before the Senate Comm. on Commerce, Science, and Transportation, 108th Cong. (2004) (statement of Ms. Kathleen Pierz).

   The most straightforward example of a product that possesses network effects is a communications network such as a phone system or a fax...