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The Reform of Universal Service

The Reform of Universal Service. NARUC April 1, 2008 New Orleans, LA . Joint Board Interim Reform Proposal May 1, 2007. • In 2002, the Joint Board began its review of USF distributions

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The Reform of Universal Service

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  1. The Reform of Universal Service NARUC April 1, 2008 New Orleans, LA

  2. Joint Board Interim Reform ProposalMay 1, 2007 • In 2002, the Joint Board began its review of USF distributions • In 2006, the USF provided approximately $4.1 billion per year in high-cost support, with approximately $980 million being distributed to CETCs. • On May 1, 2007, the Joint Board recommended the FCC take immediate action to rein in the growth in the high-cost universal service support disbursements. • The Joint Board argued that without immediate action to restrain growth in CETC funding, the USF was in jeopardy of becoming unsustainable. • The Joint Board recommended imposing an interim, emergency cap on the amount of high-cost support that CETCs may receive for each state based on the average level of CETC support distributed in that state in 2006. • Due to significant opposition, this proposal has not yet been adopted.

  3. Largest RecipientsUnder the Proposed Interim Cap Mississippi $139.6 M Puerto Rico $ 93.9 M Alaska $ 55.5 M Kansas $ 54.8 M Wisconsin $ 51.2 M Total: $395.0 M The interim cap allows the 5 largest recipients to receive 40% of CETC support.

  4. OthersUnder the Proposed Interim Cap Florida $9.4M Connecticut $0.0M Georgia $8.6M D.C. $0.0M Colorado $8.5M Delaware $0.0M N. Carolina $7.4M Idaho $0.0M Guam $7.3M Illinois $0.0M Nevada $6.3M Maryland $0.0M Vermont $5.9M Massachusetts $0.0M Indiana $5.6M New Jersey $0.0M New York $3.3M Ohio $0.0M Penn. $1.5M Rhode Island $0.0M Tenn. $1.5M South Carolina $0.0M Am. Samoa $1.4M Virgin Islands $0.0M California $1.0M The interim cap also Utah $0.3M limits another 29 New Hampshire $0.3M Total: $68.6Mrecipients toreceive N.Mariana Is. $0.2M only 7% of CETC Missouri $0.1M support.

  5. Joint Board Interim Recommendation

  6. Joint Board Interim Recommendation

  7. Wireless Subscriber Growth

  8. Wireless Minutes of Use

  9. Is the Growth in the USF Surprising?

  10. Growth of Wireless-Only Households • National Center for Health Statistics has been tracking the growth of the wireless-only households over the past three years – including year-to-year trends, and the different distribution of such households across the country. As of December 2006: • About 12.8% of households do not have a traditional landline telephone, but do have at least one wireless telephone. • About 11.6% of all children live in households with only wireless telephones. • Across all age groups, individuals living in poverty are almost twice as likely than higher income individuals to be living in households with only wireless telephones (22.4%). • Source: June-December 2006 National Health Interview Survey, NCHS

  11. Growth of Wireless-only Households (cont’d) • According to Morgan Stanley, wireless substitution is accelerating and could reach almost one-third of households by 2012. • “This phenomenon is driven by improved wireless coverage and better pricing and will be supported by new handsets and new wireless technologies.” • At the same time, line loss for wireline carriers is accelerating. • Primary residential line loss accounted for 42.3% of the 9.2 million lines lost in the past year. • Source: Simon Flannery et al., Cutting the Cord: Wireless Substitution Accelerating, Morgan Stanley Telecom Services (Sept. 27, 2007).

  12. Cell Phones as Lifelines • Regarding Universal Service, Lifeline & Link Up “These [USF Lifeline ] programs reach very few of those that they are intended to help and have a strong ‘last-century’ bias in favor of landline phone service. . . . If one of the drivers behind universal service is to insure that people have telephone access in a health or safety emergency, the phone of choice for the vast majority of Americans – young and old, male and female, poor and rich – is a cell phone.” • John Breyault, Director, New Millennium Research Council. As reported in TR Daily, March 26, 2008

  13. Cell Phones in Emergencies “Another dominate finding is that super majorities from every demographic segment say the cell phone is “extremely important” for “emergency use,” and overwhelmingly prefer a cell phone to a landline phone as a security blanket. By more than a 3-1 ratio, Americans say they prefer a cell phone to a landline phone for emergency use.” • Nicholas P. Sullivan, Cell Phones Provide Significant Economic Gains for Low-Income American Households: A Review of Literature and Data from Two New Surveys, April 2008.

  14. Economic Gains with Cell Phones “. . . if non-cell phone households in the two lower income quintiles were to acquire phones and earn [additional] money at the same rate, it would translate to [a] potential economic gain for low-income households in the $2.9 to $11 billion range.” • Nicholas P. Sullivan, Cell Phones Provide Significant Economic Gains for Low-Income American Households: A Review of Literature and Data from Two New Surveys, April 2008.

  15. Productivity Increase with Cell Phones “Millions of Americans who are most in need are missing out today on the economic gains that other Americans attribute to their cell phones. The overall conclusion in this study is that the cell phone is extremely important to Americans for personal safety, and a huge boon to an individual’s potential economic productivity and earning power. The cell phone is particularly important to blue collar, minority, less educated and low-income segments of Americans, even though those groups are far less likely to own cell phones.’ • Nicholas P. Sullivan, Cell Phones Provide Significant Economic Gains for Low-Income American Households: A Review of Literature and Data from Two New Surveys, April 2008.

  16. FCC’s Three NPRMs on Universal Service • Identical Support Rule for CETCs • Federal-State Joint Board Recommendations on Comprehensive Reform • Reverse Auctions for High Cost Support

  17. Identical Support Rule • Eliminating the identical support rule should not be done without also addressing other major reforms needed for the USF to meet the needs of the future. • Even the most narrow and targeted reform efforts must be non-discriminatory and technologically and competitively neutral. • Each eligible carrier should have equal access to high cost support.

  18. Identical Support Rule Continued • If the Identical Support rule is eliminated, what will it be replaced with? Is there a better alternative that doesn’t discriminate? • Having different funding mechanisms for different technologies is not technologically or competitively neutral. • Instead of pursuing changes to the Identical Support rule, the FCC should focus on more meaningful comprehensive reforms that will improve all aspects of the USF. • FCC should strive to gradually reduce its existing voice-oriented funding structure. • POLR support would be reduced over time while support for the new mobility and broadband funds would increase over time.

  19. Joint Board Long-TermComprehensive Reform ProposalNovember 20, 2007 Transition USF program into three high-cost universal service funds, each with distinct purposes and obligations. • Wireline “Providers of Last Resort” • Wireless “Mobility Fund” • Broadband deployment Proposes an overall high-cost cap of $4.5 billion, roughly equal to current program’s 4th quarter 2007 funding amounts. The FCC has one year to act on the recommendation

  20. Joint Board Comprehensive Reform • Comments due April 17th • Reply comments due May 19th • Instead of temporary, interim solutions that amount to a quick fix, the FCC should make the difficult decisions for meaningful, long-term reform. • An interim cap doesn’t solve any problems, it just freezes in place the existing flaws and inequities of the current system, and eliminating the Identical Support rule discriminates by technology. • Any reform should reflect the current diverse marketplace, and contemplate the customers and networks of the future. • The new fund(s) should follow the changes in the marketplace.

  21. Wireless “Mobility Fund” • Proposal caps wireless support at $1 billion per year. • Support for a single carrier in each geographic area. • Support for construction costs in “unserved areas,” but “underserved areas” would be eligible for both construction and ongoing operations support. • Funds disbursed to states who allocate it to carriers. • Potential use of reverse auctions, or • On a project-by-project basis • Funding could be increased by state matching grants.

  22. Wireless “Mobility Fund” Continued • In spite of rapid expansion of wireless networks, there are still many areas without wireless service. • These areas are simply uneconomical to serve without some level of subsidy. • Ubiquitous mobile service is still a USF goal that must be pursued. • Just because a cell site is built in a rural area does not mean that it is no longer a high cost area. Support for maintenance and operating costs should be available for rural high cost wireless networks.

  23. Broadband • Proposal targets funding at $300 million a year. • Support for a single carrier in each geographic area. • Funds disbursed to states who allocate it to carriers. • The program should have clear goals to be effective and it must have appropriate reporting standards and performance metrics.

  24. Reverse Auctions • Reverse auction rules should contemplate multiple wireless technologies and future network evolution (e.g. CDMA, GSM, LTE, and WiMAX). • Reverse auctions should not be applied to just one category of carrier, while other parts of the fund continue with existing funding mechanisms. • How many winning bidders per auction? • The “winner” should get more for bidding less.

  25. Wireline “Providers of Last Resort” • Unlike the mobility and broadband funds, the FSJB does not predict that POLR funding will decrease over time, and it leaves open the possibility that it could increase. • Little change to the current structure • No cap • Funding based on embedded costs • In the future, competitive bidding is a possibility • Funds disbursed to carriers

  26. Conclusion • Achieving long-term reform should be the primary goal and not simply implementing various interim quick fixes. • The new USF program should reflect the current diverse marketplace, and contemplate the customers and networks of the future. • Reform efforts must be non-discriminatory and both technologically and competitively neutral. • Reform efforts must not simply target one part of the USF program while leaving others operating in the status quo. True reform must consider how and when to make the difficult evolution toward the networks of the future? • High cost areas do not cease to be high cost after a cell site has been built in the area. The mobility fund should also support operating costs.

  27. Nathan Glazier, Esq.Regional ManagerState Government AffairsAlltel Communications, Inc.4805 E. Thistle Landing Dr.Phoenix, AZ 85044(602) 452-8444 Nathan.Glazier@alltel.com

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