VOIP COULD TAKE $400 MILLION FROM CAL. UNIVERSAL SERVICE IN 2008, PUC STAFF SAYS
SAN FRANCISCO -- VoIP could drain Cal.’s universal service coffers of $400 million in 2008 as it grabs 43% of the state’s voice business, predicted the staff of the state PUC. The so-called High Cost Funds A & B -- to promote service in high-cost areas through subsidies to SBC, Verizon and 17 small companies -- are expected to lose $114-$253 million, said Jack Leutza, the PUC’s Telecom Div. dir. The Universal Lifeline Fund, providing subsidies to low-income users, is seen losing $48-$107 million, the Deaf & Disabled Communications Fund $13-30 million and the Cal. Teleconnect Fund for school, library and rural medical and community- based organizations $8-$17 million, he said on a Tues. night VoIP panel here organized by Women in Telecom.
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That would have a “huge impact” on the programs, for which Cal. spends $750 million a year, the most in the country, Leutza said. It’s a “big concern” to the PUC that “universal service funding will not be able to be provided,” either from older providers whose conventional circuit- switched service is severely eroded or from VoIP providers if they are exempted from the requirement, he said.
Leutza applauded a suggestion from the audience that social obligations like universal service be financed instead from general state funds. But after SBC Cal. Regulatory Dir. Mary Liz DeJong noted the state’s treasury is threadbare, Leutza said telecom surcharge proceeds that go to universal service are being eyed hungrily by unrelated programs that have lost state funding.
Imposing universal service charges by phone number rather than minutes of use would minimize “arbitrage” incentives to shift voice to exempt IP services, said Ron Vidal, Level 3 group vp-emerging opportunities. DeJong said such a system would break down when Internet addresses replace phone numbers but should work 5-10 years meanwhile. IP-enabled services connecting to the circuit-switched network should contribute to universal service but shouldn’t be subsidized under a lifeline program, she said. Lawyer Joe Guzman, who represents young tech companies, said broadband should become part of universal service. But he said govt. otherwise should stay out of the issue because regulation hurts small players disproportionately.
The big loss projections are based on estimates of how much conventional Cal. voice service VoIP will displace the next few years. The PUC staff expects VoIP companies alone to take away 8% this year and 11% next, rising to 19% in 2008, Leutza said. Add in 2005 mass-market VoIP entry by cable companies and telcos and the total figure leaps to 16% next year and rises 8 points a year to 40% in 2008. But the established providers seem to be entering the market quickly, he said. A big marketing push by them this year would boost VoIP’s share to 12% in 2004, 20% in 2005 and 43% in 2008, Leutza said. Industry representatives say in private conversations these numbers are “way too optimistic,” but they're based on the figures providers are giving financiers, he said.
Much discussion centered on which VoIP regulatory questions would be settled how quickly and by whom. Panelists said the FCC would continue deciding limited issues individually, as it has with the Pulver.com and AT&T interconnection charge decisions. SBC’s DeJong expressed hope the Commission would quickly provide clarity on VoIP issues she characterized as the “low-hanging fruit” -- notably numbering, 911 and remaining access charge questions -- “so the industry can get moving.” SBC’s position is that calls starting as VoIP and connecting to the switched network are “indivisibly interstate” and should be subject to connection charges on that basis, she said. Most parties commenting to the FCC on the issue agree -- but some companies think the traffic should be handled as local calls and cities like San Francisco are “very concerned” about losing their ability to tax these calls, DeJong said.
The major telecom overhaul posed by VoIP’s “tranformational” challenge awaits the next Congress, Vidal said. With at least tens of billions of dollars at stake, “I don’t think it’s going to be left in the hands of the FCC,” he said. “I think it’s going to get very political.” Don’t expect anything more out of Congress this year than perhaps an appropriations rider dictating federal preemption on VoIP for a limited period, Vidal said.
The Cal. PUC will seek to integrate its policy with FCC action, Leutza said. By the end of Aug., the PUC should hold a prehearing conference on its Order Instituting Investigation asking what the appropriate regulatory framework for VoIP is, he said. The scope of the proceeding and a draft decision date should emerge from that session, Leutza said. He said he expects the decision next spring.