No Industry Consensus on How to Reform USF Contribution Methodology

AT&T supported moving away from revenue-focused approach, and instead looking at the “inputs,” such as connectivity, bandwidth, data transmission and network address resources (http://xrl.us/bngetu). It proposed that the FCC distribute the burden, possibly based on top-line revenue, among providers of fixed connectivity, mobile connectivity and over-the-top service. Then the agency should, in the company’s view, adopt an appropriate input within each group, such as connections or phone numbers, to assign contribution obligations to individual providers within that group. “Whichever direction the Commission takes, however, it should no longer expect providers to determine at their peril whether or not a particular service triggers contribution obligations,” AT&T wrote. “The Commission should itself draw those lines explicitly, clearly, and in advance.” In the near term, AT&T proposed altering the existing wholesale/resale regime, clarifying how providers of bundled offerings should report revenue, establishing wireless and VoIP traffic study methodologies, and implementing long overdue reforms to the commission’s management of the USF.

Verizon generally supported sticking with the current revenue-based contribution system, and warned against a system based on in-use working phone numbers. That has shortcomings that have led to “hybrid” approaches that offset the positive attributes of a numbers-based system (http://xrl.us/bngety), the telco said. Similarly, connections-based contributions suffer from the lack of a workable definition of “connection” across all technologies, Verizon said. The company encouraged the commission to take steps to ensure the contribution system is competitively and technologically neutral, and to adopt the recent proposal submitted by an industry coalition for the treatment of multi-protocol label switching, which would establish a “consistent and workable framework to address contributions and revenues.” VoIP providers and voice service providers without end-user revenue should also contribute to the USF, Verizon said, but the telco was adamant that text messaging shouldn’t incur contribution requirements. The commission should beware of the “serious ramifications to the addition of broadband revenue to the contribution base,” such as defining the broadband service subject to assessment, and clearly articulating the line between assessable and non-assessable services and applications, Verizon said.

If the commission extends the contribution obligation to broadband services, USTelecom wants it to include more participants in the “broadband ecosystem,” either directly or indirectly, and assess providers in a competitively and technologically neutral manner (http://xrl.us/bnget2). The association wants the FCC to request federal legislation to use general revenue to fund its low-income programs, either for voice or voice and broadband. Funding Lifeline this way “would be consistent with other federal programs that help low-income individuals or families afford what are considered life’s necessities,” USTelecom said. Immediately, the commission should adopt administrative reforms such as notice and comment on Form 499 instruction changes; offer amnesty for good faith interpretations of the form’s instructions; offer symmetric contribution liability and refund periods; and “reduce the volatility” of the contribution factor by releasing it annually instead of quarterly.

CompTel supports the continued assessment of contributions on a revenue basis. “The lack of clarity in the Commission’s connections-based proposal makes the request for comments more appropriate to a Notice of Inquiry than a Notice of Proposed Rulemaking,” the association said (http://xrl.us/bngego). The FCC should expand the pool of services and providers subject to contribution, incorporating new technologies and service offerings, such as enterprise communications service, VoIP, broadband and text messaging services, CompTel said.

The NTCA, OPASTCO and Western Telecommunications Alliance encouraged the commission to stick with a revenue-based model while keeping the flexibility needed to move to “hybrid” approaches “as necessary to fill gaps” (http://xrl.us/bngeiw). Revenue-based models provide clarity in definition, transparency in enforcement, and predictability, they jointly said. They encouraged the commission to lessen its focus on open-ended and “future proof” contribution rules; while admirable, “a list of assessed services that is updated regularly is necessary to minimize confusion and to reflect marketplace development,” they said. They encouraged the commission to assess text messaging and one-way VoIP, because both services contain a telecom component and benefit from use of the public switched telephone network; enterprise communications services that include a telecom component; and all retail broadband access services.

The Independent Telephone and Telecommunications Alliance proposed a hybrid numbers/connections-based approach that assesses a flat monthly fee for each working residential and business number, and a tiered monthly charge for each connection to all assessable services (http://xrl.us/bngeue). “The commission would set the per-number charge before setting the per-connection charge and would calculate the per-connection charge to collect the amount of total annual USF revenue requirement estimated to remain after collection of all per-number charges,” ITTA said. This approach has several advantages over a straight revenue- or numbers-based system, including promoting competitive neutrality, providing far more predictability, advancing regulatory parity and decreasing opportunities for arbitrage, ITTA said.

Cable companies demonstrated less support for any particular model, and were generally wary of assessing broadband. Time Warner Cable said a revenue-, numbers- or a connection-based system are all “capable of meeting the Commission’s objectives” (http://xrl.us/bngemk). If the agency retains the existing revenue-based system, it should simplify reporting and contribution rules by adopting additional safe harbors and considering fixed revenue allocations to eliminate existing uncertainty and streamline compliance burdens, TWC said. The company said it was “premature” to impose contribution requirements on broadband, because the cost of USF contributions would cause disadvantages and complexities that could outweigh the intended benefits. NCTA cautioned against assessing broadband fees because of the “potential negative consequences” including inadvertently skewing competition or unduly affecting adoption (http://xrl.us/bngemt). To Comcast, anything’s better than a revenue-based system, which has several flaws, such as the difficulty of defining assessable services, distinguishing between wholesale and retail services, the company said (http://xrl.us/bngem7). It encouraged the agency to “carefully explore alternatives to the current revenues-based system unless the Commission can develop and implement workable reforms that effectively address the economic distortions and other problems that afflict the existing regime.” A hybrid approach assessing consumers on the basis of numbers while assessing larger commercial customers solely on the basis of connections could be a good option, Comcast said.

Sprint Nextel said it could support two systems: A connections-based system, where consumers would pay the same fixed monthly charge for each network connection they use; or a “total retail bill” revenue-based methodology, where consumers pay USF charges based on a set percentage of their total bill for service provided over their network connections (http://xrl.us/bngens). For the latter option to work, the commission would have to address whether it has the legal authority to impose USF charges on revenue generated from intrastate voice services, and whether it can require contributions from providers of competing information services if those providers require their customers to “bring their own” broadband connection, Sprint said. U.S. Cellular wants the FCC to expand the contribution base to broadband, and use a general definition of “assessable information services” to ensure the contribution base can be expanded quickly in the future (http://xrl.us/bngeoe). A service-by-service list, which would require frequent updating, would be “too cumbersome” and lead to unnecessary delays, the carrier said.

The Rural Cellular Association said it wants to keep a revenue-based system, with reforms such as safe harbors and other mechanisms to improve clarity (http://xrl.us/bngepu). The commission should include enterprise and one-way VoIP services, but should defer consideration of whether to include text messaging and broadband internet access, RCA said. “Assessing SMS text messages but not other forms of text messaging (such as web-based instant messaging, e-mail, etc.) would distort competition and produce inequitable results for consumers."

Vonage proposed a “capacity-based” contribution method that focuses on physical connections to the network (http://xrl.us/bngepd). If the commission chooses to keep the existing revenue-based model, it should reform the model to include prepaid calling card revenue, and not adopt bundling rules that favor providers offering their services on a stand-alone and bundled basis, the company said. The Voice on the Net Coalition also supported a connections-based system, because reliance on interstate revenues is unsustainable “as consumers utilize new forms of communications that do not align with existing definitions” (http://xrl.us/bngepo). Shifting to connections will “remove the guesswork from the payment process” and put in place a framework that promotes IP services, VON said. NASUCA meanwhile likes the current revenue-based system, as it effectively gauges how the network is used, the association of state consumer advocates said (http://xrl.us/bngekm). It supports the addition of broadband services to the contribution system, but wants the commission to spend more time studying “the implications of this sea change in the USF.” It also encouraged the commission to prohibit allowing contributors to pass through contributions as a line item on customers’ bills.